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Takeover Contests, Toeholds and Deterrence

  • David Ettinger

    ()

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris IX - 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
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Publication status: Published, Scandinavian Journal of Economics, 2009, 111, 1, 103-124
Handle: RePEc:hal:journl:hal-00702428
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00702428
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  1. Berkovitch, Elazar & Narayanan, M. P., 1993. "Motives for Takeovers: An Empirical Investigation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(03), pages 347-362, September.
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  10. Ettinger, David, 2008. "Auctions and shareholdings," Economics Papers from University Paris Dauphine 123456789/5431, Paris Dauphine University.
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  16. Hirshleifer, David & Titman, Sheridan, 1990. "Share Tendering Strategies and the Success of Hostile Takeover Bids," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 295-324, April.
  17. Burkart, Mike, 1995. " Initial Shareholdings and Overbidding in Takeover Contests," Journal of Finance, American Finance Association, vol. 50(5), pages 1491-1515, December.
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