A model of takeover price: a comparative analysis of the bidder’s strategies

Véronique Bessière

No 1997-2, Accepted Papers Series from Montpellier University, Center for Research in Finance

Abstract: We develop a model of the takeover offer price in which the acquirer has a choice between (1) a dissuasive or minimum price, (2) a signaling or mimicking strategy, and (3) a hostile or friendly offer. This last consideration is important in France, where most of the acquisitions have previously received the agreement of the target\'s management. The takeover is modeled as an auction between two acquirers with two types (high or low synergies). The alternative strategies are specified following the perfect bayesian equilibrium requirements for signaling games. The hostile offer analysis shows principally that the dissuasive strategy is always preferred when information costs are high (the costs engaged by the bidder to know his target\'s valuation), and that the signaling strategy is not always the most profitable, even for the high type bidder. The friendly offer is modeled in a value maximisation context, and negotiation constitutes a free mechanism to obtain information, for both the target and the bidder. Consequently, this offer appears to be the equilibrium strategy as soon as information cost exists.

Date: 1997-06-01
Note: This paper received in 2000 the award of the best article published in \"Revue Finance\", granted by \"Revue Finance\" and the French Finance Association; article in French language
References: Add references at CitEc
Citations:

Published in Revue Finance, vol.18-2

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:grf:mtpaps:vb005

Access Statistics for this paper

More papers in Accepted Papers Series from Montpellier University, Center for Research in Finance Contact information at EDIRC.
Bibliographic data for series maintained by Michael Kaestner ( this e-mail address is bad, please contact ).