Auctions vs. negotiations in takeovers with initial stakes

Gino Loyola

Finance Research Letters, 2012, vol. 9, issue 3, 111-120

Abstract: Takeover attempts from raiders with prior stakes in the target company (toeholds) are frequent in the market for corporate control. In this context, we propose a simple and realistic selling mechanism with an agenda of exclusive negotiations that discriminates against larger-toehold raiders. When a reserve price is absent, it is shown that this negotiation procedure outperforms, in terms of expected target price, conventional auctions frequently used to model takeover battles. However, when standard auctions can be improved with an optimal reserve price, our results indicate that this target price superiority is sensitive to the degree of toehold asymmetry.

Keywords: Takeover; Toehold; Corporate control; Negotiation; Auction (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 G32 G34 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612312000268
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:finlet:v:9:y:2012:i:3:p:111-120

DOI: 10.1016/j.frl.2012.05.001

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

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