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Hostile versus Friendly Takeovers

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  • Schnitzer, Monika

Abstract

This paper analyzes the choice of a raider between a hostile and a friendly takeover. If the target company's manager has private information about the scope for efficiency gains, it is shown that the raider may prefer a hostile acquisition even if transaction costs for a friendly takeover are much smaller. The raider actually chooses between a (hostile) tender offer to uninformed shareholders and (friendly) merger negotiations with the informed manager. The author shows how the uncertainty about potential efficiency gains, the manager's preference for control, the number of shares held by the manager, and transaction costs affect the raider's choice. Copyright 1996 by The London School of Economics and Political Science.

Suggested Citation

  • Schnitzer, Monika, 1996. "Hostile versus Friendly Takeovers," Economica, London School of Economics and Political Science, vol. 63(249), pages 37-55, February.
  • Handle: RePEc:bla:econom:v:63:y:1996:i:249:p:37-55
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    Cited by:

    1. Heinrich, Ralph P., 1999. "Complementarities in Corporate Governance - A Survey of the Literature with Special Emphasis on Japan," Kiel Working Papers 947, Kiel Institute for the World Economy (IfW).
    2. Dickerson, Andrew P. & Gibson, Heather D. & Tsakalotos, Euclid, 2002. "Takeover risk and the market for corporate control: the experience of British firms in the 1970s and 1980s," International Journal of Industrial Organization, Elsevier, vol. 20(8), pages 1167-1195, October.
    3. Mohd Irfan, 2011. "The role of executives in hostile takeover attempts," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 6(1), pages 29-40, May.
    4. Pierre Lasserre & Moez Souissi, 2007. "It Takes Two to Tango. La fusion : exercice de deux options réelles," Économie et Prévision, Programme National Persée, vol. 178(2), pages 51-65.
    5. Offenberg, David & Pirinsky, Christo, 2015. "How do acquirers choose between mergers and tender offers?," Journal of Financial Economics, Elsevier, vol. 116(2), pages 331-348.

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