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Takeover Contests, Toeholds and Deterrence

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  • David Ettinger

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

Abstract

We consider a setting in which two potential buyers, one with a prior toehold and one without, compete in a takeover modeled as an ascending auction with participating costs. The toeholder is more aggressive during the takeover process because she is also a seller of her own shares. The non-toeholder anticipates this extra-aggressiveness of the toeholder. Thus, he is deterred from participating unless he has a high valuation for the target company. This leads to large inefficiency losses. For many configurations, expected target returns are first increasing then decreasing in the size of the toehold.

Suggested Citation

  • David Ettinger, 2009. "Takeover Contests, Toeholds and Deterrence," Post-Print hal-00702428, HAL.
    • Handle: RePEc:hal:journl:hal-00702428
    Note: View the original document on HAL open archive server: https://hal.science/hal-00702428
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    Cited by:

    1. Georges Dionne & Mélissa La Haye & Anne-Sophie Bergerès, 2015. "Does asymmetric information affect the premium in mergers and acquisitions?," Canadian Journal of Economics, Canadian Economics Association, vol. 48(3), pages 819-852, August.
    2. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
    3. Iryna Banakh & Taras Banakh & Pavel Trisch & Myroslava Vovk, 2012. "Toehold Purchase Problem: A comparative analysis of two strategies," Papers 1204.2065, arXiv.org, revised Sep 2014.
    4. Loyola, Gino, 2012. "Auctions vs. negotiations in takeovers with initial stakes," Finance Research Letters, Elsevier, vol. 9(3), pages 111-120.

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