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Takeover Contests, Toeholds and Deterrence

  • David Ettinger

    ()

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS - Centre National de la Recherche Scientifique - Université Paris-Dauphine)

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.

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Paper provided by HAL in its series Post-Print with number hal-00702428.

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Date of creation: 2009
Publication status: Published in Scandinavian Journal of Economics, Wiley, 2009, 111 (1), pp.103-124
Handle: RePEc:hal:journl:hal-00702428
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00702428
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  1. Guofu Tan & Okan Yilankaya, 2005. "Equilibria in Second Price Auctions with Participation Costs," IEPR Working Papers 05.7, Institute of Economic Policy Research (IEPR).
  2. David Ettinger, 2008. "Auctions and shareholdings," Post-Print hal-00701303, HAL.
  3. Eckbo, B. Espen & Langohr, Herwig, 1989. "Information disclosure, method of payment, and takeover premiums : Public and private tender offers in France," Journal of Financial Economics, Elsevier, vol. 24(2), pages 363-403.
  4. 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.
  5. Maasland, E. & Onderstal, A.M., 2002. "Auctions with Financial Externalities," Discussion Paper 2002-22, Tilburg University, Center for Economic Research.
  6. repec:adr:anecst:y:2008:i:90:p:09 is not listed on IDEAS
  7. Betton, Sandra & Eckbo, B Espen & Thorburn, Karin S, 2005. "The Toehold Puzzle," CEPR Discussion Papers 5084, C.E.P.R. Discussion Papers.
  8. 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.
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