IDEAS home Printed from https://ideas.repec.org/p/xrs/sfbmaa/98-59.html
   My bibliography  Save this paper

Why Tender Offers Should be Financed with Debt

Author

Listed:
  • Müller, Holger M.

    () (Department of Economics, University of Mannheim)

Abstract

This paper considers the choice of tender offer financing in the presence of atomistic shareholders. If the tender offer is financed with debt, the raider can extract at least part of the gains from future value improvements as the additional leverage introduced into the merged firm reduces the posttakeover share value and therefore the incentives for target shareholders to hold on to their shares. In contrast, if the tender offer is financed with equity, any gains from future value improvements must be passed to the target shareholders. The paper further considers the optimal choice of capital structure by the target management in response to a concrete takeover threat. It is shown that an increase in leverage raises the bid premium but reduces the probability that the takeover succeeds as it limits the raider's ability to borrow against the target's existing assets.

Suggested Citation

  • Müller, Holger M., 1998. "Why Tender Offers Should be Financed with Debt," Sonderforschungsbereich 504 Publications 98-59, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:98-59
    Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
    as

    Download full text from publisher

    File URL: http://www.sfb504.uni-mannheim.de/publications/dp98-59.pdf
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:98-59. 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: (Carsten Schmidt). General contact details of provider: http://edirc.repec.org/data/sfmande.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.