Toehold Purchase Problem: A comparative analysis of two strategies
Toehold purchase, defined here as purchase of one share in a firm by an investor preparing a tender offer to acquire majority of shares in it, reduces by one the number of shares this investor needs for majority. In the paper we construct mathematical models for the toehold and no-toehold strategies and compare the expected profits of the investor and the probabilities of takeover the firm in both strategies. It turns out that the expected profits of the investor in both strategies coincide. On the other hand, the probability of takeover the firm using the toehold strategy is considerably higher comparing to the no-toehold strategy. In the analysis of the models we apply the apparatus of incomplete Beta functions and some refined bounds for central binomial coefficients.
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.:
- Goldman, Eitan & Qian, Jun, 2005. "Optimal toeholds in takeover contests," Journal of Financial Economics, Elsevier, vol. 77(2), pages 321-346, August.
- Ettinger, David, 2009.
"Takeover contests, toeholds and deterrence,"
Economics Papers from University Paris Dauphine
123456789/5449, Paris Dauphine University.
- Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 89-110.
- 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.
- Rajdeep Singh, 1995. "Takeover Bidding with Toeholds: The Case of the Owner's Curse," Finance 9503001, EconWPA.
- Ravid, S. Abraham & Spiegel, Matthew, 1999. "Toehold strategies, takeover laws and rival bidders," Journal of Banking & Finance, Elsevier, vol. 23(8), pages 1219-1242, August.
- Sris Chatterjee & Kose John & An Yan, 2012. "Takeovers and Divergence of Investor Opinion," Review of Financial Studies, Society for Financial Studies, vol. 25(1), pages 227-277.
- Bris, Arturo, 2002. "Toeholds, takeover premium, and the probability of being acquired," Journal of Corporate Finance, Elsevier, vol. 8(3), pages 227-253, July.
- 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.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1204.2065. 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: (arXiv administrators)
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.