Managerial Reaction to Takeover Bids: A Theory of Strategic Resistance

Sankar De and Peter J Knez

Journal of Economics & Management Strategy, 1993, vol. 2, issue 4, 567-92

Abstract: This paper develops a theory to explain the frequently observed resistance offered by the management of target firms to high-premium takeover bids. Contrary to the popular perception of managerial entrenchment at the expense of the shareholders' interests, such resistance may be strategically designed to increase shareholder wealth by threatening to initiate an informal auction process for the target involving other potential bidders. Remarkably, this strategy can be effective even when it is "common knowledge" that the other bidders do not have a higher reservation price for the target. The analysis also offers insights into division of takeover gains and several other takeover-related issues. Copyright 1993 by MIT Press.

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:2:y:1993:i:4:p:567-92

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