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Strategic Toeholds in Takeovers

Author

Listed:
  • Herve Alexandre

    (Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Christian At

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

  • Catherine Refait-Alexandre

    (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

Abstract

Theoretical literature predicts that raiders should hold part of the shares - a so-called toehold - before a takeover operation. Whereas theoretical results predict that the toehold should be maximal, empirical results reveals heterogeneity in the observed levels of toeholds. Our study explains this gap. We develop a tender o↵er model with atomistic target shareholders and asymmetric information. We find that it is optimal to acquire a toehold prior to the announcement of the takeover and we determine the optimal level of the toehold. Some particular environments may reduce the optimal level of toeholds: strong dilution mechanisms, soft financial constraints for the bidder, low financial frictions, a high legal protection for investors and not all-cash payment methods. We provide empirical evidence that support our predictions.

Suggested Citation

  • Herve Alexandre & Christian At & Catherine Refait-Alexandre, 2023. "Strategic Toeholds in Takeovers," Working Papers hal-04604654, HAL.
    • Handle: RePEc:hal:wpaper:hal-04604654
    Note: View the original document on HAL open archive server: https://hal.science/hal-04604654v1
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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