Auctions vs. negotiations in takeovers with initial stakes
Takeover attempts from raiders with prior stakes in the target company (toeholds) are frequent in the market for corporate control. In this context, we propose a simple and realistic selling mechanism with an agenda of exclusive negotiations that discriminates against larger-toehold raiders. When a reserve price is absent, it is shown that this negotiation procedure outperforms, in terms of expected target price, conventional auctions frequently used to model takeover battles. However, when standard auctions can be improved with an optimal reserve price, our results indicate that this target price superiority is sensitive to the degree of toehold asymmetry.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1999.
"Toeholds and Takeovers,"
Journal of Political Economy,
University of Chicago Press, vol. 107(3), pages 427-454, June.
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA.
- Paul Klemperer & Jeremy Bulow, 1998. "Toeholds and Takeovers," Economics Series Working Papers 1998-W04, University of Oxford, Department of Economics.
- Bulow, Jeremy I. & Huang, Ming & Klemperer, Paul, 1996. "Toeholds and Takeovers," CEPR Discussion Papers 1486, C.E.P.R. Discussion Papers.
- Jeremy Bulow & Ming Huang & Paul Klemperer, 1996. "Toeholds and Takeovers," Finance 9608001, EconWPA.
- Bulow, Jeremy I. & Klemperer, Paul, 2009.
"Why Do Sellers (Usually) Prefer Auctions?,"
CEPR Discussion Papers
7411, C.E.P.R. Discussion Papers.
- Paul Klemperer & Jeremy Bulow, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Series Working Papers 2009-W05, University of Oxford, Department of Economics.
- Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford.
- Rajdeep Singh, 1995.
"Takeover Bidding with Toeholds: The Case of the Owner's Curse,"
- 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.
- repec:dau:papers:123456789/5449 is not listed on IDEAS
- Paul Povel & Rajdeep Singh, 2006. "Takeover Contests with Asymmetric Bidders," Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1399-1431.
- Goldman, Eitan & Qian, Jun, 2005. "Optimal toeholds in takeover contests," Journal of Financial Economics, Elsevier, vol. 77(2), pages 321-346, August.
- David Ettinger, 2009.
"Takeover Contests, Toeholds and Deterrence,"
- repec:dau:papers:123456789/5431 is not listed on IDEAS
- Peter Cramton & Alan Schwartz, 1991.
"Using Auction Theory to Inform Takeover Regulation,"
Papers of Peter Cramton
91jleo, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Cramton, Peter & Schwartz, Alan, 1991. "Using Auction Theory to Inform Takeover Regulation," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(1), pages 27-53, Spring.
- Dasgupta, Sudipto & Tsui, Kevin, 2003. "A "matching auction" for targets with heterogeneous bidders," Journal of Financial Intermediation, Elsevier, vol. 12(4), pages 331-364, October.
- Betton, Sandra & Eckbo, B. Espen & Thorburn, Karin S., 2009. "Merger negotiations and the toehold puzzle," Journal of Financial Economics, Elsevier, vol. 91(2), pages 158-178, February.
- David Ettinger, 2008.
"Auctions and shareholdings,"
- Bradley, Michael & Desai, Anand & Kim, E. Han, 1988. "Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms," Journal of Financial Economics, Elsevier, vol. 21(1), pages 3-40, May.
- Audra L. Boone & J. Harold Mulherin, 2007. "How Are Firms Sold?," Journal of Finance, American Finance Association, vol. 62(2), pages 847-875, 04.
- Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
- Officer, Micah S., 2003. "Termination fees in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 69(3), pages 431-467, September.
- repec:adr:anecst:y:2008:i:90:p:09 is not listed on IDEAS
- Betton, Sandra & Eckbo, B Espen, 2000. "Toeholds, Bid Jumps, and Expected Payoffs in Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 841-82.
When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:9:y:2012:i:3:p:111-120. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.