Negotiations under the threat of an auction

Nihat Aktas, Eric de Bodt and Richard Roll
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Nihat Aktas: EM - EMLyon Business School
Eric de Bodt: Université Lille Nord (France)
Richard Roll: UCLA Anderson School of Management

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Abstract: Many takeovers occur after one-on-one negotiations, which suggests a troubling lack of competition. We seek to determine whether acquirers in such friendly deals are truly insulated from competitive pressures. We study two countervailing influences: potential but unobserved latent competition, i.e., the likelihood that rival bidders could appear, and anticipated auction costs when negotiations fail. Using various proxies, we find that latent competition increases the bid premium offered in negotiated deals and that auction costs reduce the premium.

Date: 2010-11-01
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Published in Journal of financial economics, 2010, 98 (2), 241-255 p. ⟨10.1016/j.jfineco.2010.06.002⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312521

DOI: 10.1016/j.jfineco.2010.06.002

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