Information in tender offers with a large shareholder
We study tender offers for a firm which is owned by one large shareholder who holds less than half of the total shares, and many small shareholders who each hold a unit share. Each shareholder is privately informed, yet uncertain, about the raider’s ability to improve the value of the firm, whereas the raider is unin- formed. In the benchmark model of complete information, the raider is unable to make a profit. As shown in Marquez and Y?lmaz (2008), the same obtains when the raider is facing only privately informed small shareholders. We show, however, that the combination of private information on the side of shareholders and the presence of a large shareholder can facilitate profitable takeovers. More precisely, for any given information structure, the raider can make a profit if the large shareholder holds a sufficiently large stake in the company. In the unique equilibrium outcome, neither the probability of a successful takeover nor the quilibrium price offer depends on the large shareholder’s information. Therefore, the large shareholder’s information is not reflected in the price. When the equilibrium price offer is positive, the large shareholder tenders all of his shares regardless of his information. Finally, we show that the same type of equilibria arise when there are several large shareholders, as long as their total stake in the company is smaller than one-half. Keywords: takeovers, tender offers, lemons problem, large shareholder. JEL Classification Numbers: D82, G34.
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.igier.unibocconi.it/
|Order Information:|| Web: http://www.igier.unibocconi.it/en/papers/index.htm Email: |
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.:
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
- Harrington, Joseph E, Jr & Prokop, Jacek, 1993. "The Dynamics of the Free-Rider Problem in Takeovers," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 851-82.
When requesting a correction, please mention this item's handle: RePEc:igi:igierp:453. 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: ()
If references are entirely missing, you can add them using this form.