Using Auction Theory to Inform Takeover Regulation
This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.
|Date of creation:||1991|
|Date of revision:||09 Jun 1998|
|Publication status:||Published in Journal of Law, Economics and Organization, 7:1, Spring 1991, pages 27-53.|
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