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Value of Information and Fairness Opinions in Takeovers

Author

Listed:
  • Mehmet Ekmekci
  • Nenad Kos

Abstract

We analyze the value of information in the market for corporate control. The raider and the shareholders are privately and imperfectly informed about the post-takeover value of the firm. We show that public information provision reduces the dispersion of the shareholders’ beliefs resulting in a transfer of surplus from the raider to the shareholders. What is more, if the raider is privately informed all his private information is revealed through the price offer, hence he prefers not to acquire private information, provided that the shareholders do not engage in information acquisition. The target shareholders, on the other hand, have incentives to acquire information—solicit a fairness opinion—after the raider makes a price offer. However, when both parties have access to an information market, they both have incentives to acquire information. Keywords: takeovers, fairness opinion, tender offers, lemons problem, large shareholder. JEL Classification Numbers: D82, G34.

Suggested Citation

  • Mehmet Ekmekci & Nenad Kos, 2014. "Value of Information and Fairness Opinions in Takeovers," Working Papers 510, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:510
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    References listed on IDEAS

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    Cited by:

    1. Dalkır, Elif, 2015. "Shareholder information and partial tender offers," Economics Letters, Elsevier, vol. 136(C), pages 64-66.
    2. Ekmekci, Mehmet & Kos, Nenad, 2023. "Signaling covertly acquired information," Journal of Economic Theory, Elsevier, vol. 214(C).

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    Keywords

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    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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