Toeholds and Takeovers.
Part ownership of a takeover target can help a bidder win a takeover auction, often at a low price. A bidder with a 'toehold' bids aggressively in a standard ascending auction because its offers are both bids for the remaining shares and asks for its own holdings. While the direct effect o...
| Main Authors: | , , |
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| Format: | Working paper |
| Language: | English |
| Published: |
CEPR
1996
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| _version_ | 1797105204899872768 |
|---|---|
| author | Bulow, J Huang, M Klemperer, P |
| author_facet | Bulow, J Huang, M Klemperer, P |
| author_sort | Bulow, J |
| collection | OXFORD |
| description | Part ownership of a takeover target can help a bidder win a takeover auction, often at a low price. A bidder with a 'toehold' bids aggressively in a standard ascending auction because its offers are both bids for the remaining shares and asks for its own holdings. While the direct effect of a toehold on a bidder's strategy may be small, the indirect effect is large in a common value auction. When a firm bids more aggressively, its competitors face an increased winner's curse and must bid more conservatively. This allows the toeholder to bid more aggressively still, and so on. One implication is that a controlling minority shareholder may be immune to outside offers. The board of a target may increase the expected sale price by allowing a second bidder to buy a toehold on favourable terms, or by running a sealed bid auction. |
| first_indexed | 2024-03-07T06:44:09Z |
| format | Working paper |
| id | oxford-uuid:fa4e135e-0a31-4dbd-b5b4-1e26f0baf955 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T06:44:09Z |
| publishDate | 1996 |
| publisher | CEPR |
| record_format | dspace |
| spelling | oxford-uuid:fa4e135e-0a31-4dbd-b5b4-1e26f0baf9552022-03-27T13:04:38ZToeholds and Takeovers.Working paperhttp://purl.org/coar/resource_type/c_8042uuid:fa4e135e-0a31-4dbd-b5b4-1e26f0baf955EnglishDepartment of Economics - ePrintsCEPR1996Bulow, JHuang, MKlemperer, PPart ownership of a takeover target can help a bidder win a takeover auction, often at a low price. A bidder with a 'toehold' bids aggressively in a standard ascending auction because its offers are both bids for the remaining shares and asks for its own holdings. While the direct effect of a toehold on a bidder's strategy may be small, the indirect effect is large in a common value auction. When a firm bids more aggressively, its competitors face an increased winner's curse and must bid more conservatively. This allows the toeholder to bid more aggressively still, and so on. One implication is that a controlling minority shareholder may be immune to outside offers. The board of a target may increase the expected sale price by allowing a second bidder to buy a toehold on favourable terms, or by running a sealed bid auction. |
| spellingShingle | Bulow, J Huang, M Klemperer, P Toeholds and Takeovers. |
| title | Toeholds and Takeovers. |
| title_full | Toeholds and Takeovers. |
| title_fullStr | Toeholds and Takeovers. |
| title_full_unstemmed | Toeholds and Takeovers. |
| title_short | Toeholds and Takeovers. |
| title_sort | toeholds and takeovers |
| work_keys_str_mv | AT bulowj toeholdsandtakeovers AT huangm toeholdsandtakeovers AT klempererp toeholdsandtakeovers |