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Takeover Contests, Toeholds and Deterrence

  • David Ettinger

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modeled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, he is deterred from participating unless he has a high valuation for the target company. This leads to large inefficiency losses. For many configurations, expected target returns are first increasing then decreasing in the size of the toehold. Copyright � The editors of the "Scandinavian Journal of Economics" 2009 .

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 111 (2009)
Issue (Month): 1 (03)
Pages: 103-124

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Handle: RePEc:bla:scandj:v:111:y:2009:i:1:p:103-124
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  1. Singh, Rajdeep, 1998. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 679-704.
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