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Information in tender offers with a large shareholder

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  • Mehmet Ekmekci
  • Nenad Kos

Abstract

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.

Suggested Citation

  • Mehmet Ekmekci & Nenad Kos, 2012. "Information in tender offers with a large shareholder," Working Papers 453, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:453
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    References listed on IDEAS

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    1. 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 851-882.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, January.
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    Cited by:

    1. Atakan, Alp Enver & Ekmekci, Mehmet, 2016. "Market Selection and the Information Content of Prices," MPRA Paper 75632, University Library of Munich, Germany.
    2. Marco Pagnozzi & Antonio Rosato, 2014. "Entry by Takeover: Auctions vs. Negotiations," CSEF Working Papers 353, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Mehmet Ekmekci & Nenad Kos & Rakesh Vohra, 2016. "Just Enough or All: Selling a Firm," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 223-256, August.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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