Toehold acquisitions as option games

José Lacerda, Paulo J. Pereira and Artur Rodrigues

Economics Letters, 2021, vol. 209, issue C

Abstract: This paper studies how a pre-bid minority ownership (toehold) in the target firm can improve the acquirer’s position in the takeover process by reducing the information asymmetry. Using a dynamic real options approach to compare the takeover options (with and without a toehold), the bidder can optimally choose the acquisition mode and the toehold size. Toehold acquisitions are more likely to occur under low market uncertainty, low expected synergies and high synergies uncertainty. These results suggest that managers’ overconfidence, market and synergies uncertainty, and asymmetry of information can help explaining the choice of toeholds when defining the acquisition strategy.

Keywords: Toeholds; Mergers and acquisitions; Takeovers; Real options (search for similar items in EconPapers)
JEL-codes: C73 D81 G34 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521003700
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:209:y:2021:i:c:s0165176521003700

DOI: 10.1016/j.econlet.2021.110093

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().