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Rationalizable and Coalition Proof Shareholder Tendering Strategies in Corporate Takeovers

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  • Noe, Thomas H

Abstract

This paper determines the set of rational responses by shareholders to unconditional takeover offers at prices between the pre-acquisition and post-acquisition price of the firm. Two cases are considered. In the first case, coordination across shareholders is not presumed. In this case, the game is analyzed using the Rationalizability criteria (Bernheim, 1984). It is demonstrated that the Rationalizable strategy vectors include all pure strategy vectors. In the second case, the set of strategies consistent with coordination through preplay communication, the Coalition Proof Nash Equilibria (Bernheim, Peleg, and Whinston, 1987) are analyzed. It is shown that, given even a minimal degree of divisibility of shareholdings, the raider's per share profit is bounded from below by a positive constant independent of the number of shareholders. These results imply that preplay coordination between shareholders eliminates the "free-rider" problem. Copyright 1998 by Kluwer Academic Publishers

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  • Noe, Thomas H, 1998. "Rationalizable and Coalition Proof Shareholder Tendering Strategies in Corporate Takeovers," Review of Quantitative Finance and Accounting, Springer, vol. 11(3), pages 269-291, November.
    • Handle: RePEc:kap:rqfnac:v:11:y:1998:i:3:p:269-91
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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," The Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 851-882.
    2. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1991. "A test of the free cash flow hypothesis*1: The case of bidder returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 315-335, October.
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    5. Gertner, Robert & Scharfstein, David, 1991. "A Theory of Workouts and the Effects of Reorganization Law," Journal of Finance, American Finance Association, vol. 46(4), pages 1189-1222, September.
    6. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
    7. Holmstrom, Bengt & Nalebuff, Barry, 1992. "To the Raider Goes the Surplus? A Reexamination of the Free-Rider Problem," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 37-62, Spring.
    8. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
    9. Brickley, James A. & Lease, Ronald C. & Smith, Clifford Jr., 1988. "Ownership structure and voting on antitakeover amendments," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 267-291, January.
    10. Chatterjee, Sris & Dhillon, Upinder S. & Ramirez, Gabriel G., 1995. "Coercive tender and exchange offers in distressed high-yield debt restructurings An empirical analysis," Journal of Financial Economics, Elsevier, vol. 38(3), pages 333-360, July.
    11. Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 89-110.
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    Cited by:

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    2. Ambrus, Attila, 2006. "Coalitional Rationalizability," Scholarly Articles 3200266, Harvard University Department of Economics.
    3. Noe, Thomas H. & Pi, Lynn, 2000. "Learning dynamics, genetic algorithms, and corporate takeovers," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 189-217, February.

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