Takeover contests, toeholds and deterrence

Ettinger, David

Ettinger, David (2009), Takeover contests, toeholds and deterrence, The Scandinavian journal of economics, 111, 1, p. 103-124. http://dx.doi.org/10.1111/j.1467-9442.2008.01556.x

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Type

Article accepté pour publication ou publié

Date

2009

Journal name

The Scandinavian journal of economics

Volume

111

Number

Publisher

Wiley

Pages

103-124

Abstract (EN)

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.

Subjects / Keywords

deterrence; toeholds; ascending auctions; Takeovers

JEL

D44 - Auctions
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G34 - Mergers; Acquisitions; Restructuring; Corporate Governance