Strategic Toeholds in Takeovers

Herve Alexandre (), Christian At () and Catherine Refait-Alexandre
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Herve Alexandre: Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Christian At: CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: Theoretical literature predicts that raiders should hold part of the shares - a so-called toehold - before a takeover operation. Whereas theoretical results predict that the toehold should be maximal, empirical results reveals heterogeneity in the observed levels of toeholds. Our study explains this gap. We develop a tender o↵er model with atomistic target shareholders and asymmetric information. We find that it is optimal to acquire a toehold prior to the announcement of the takeover and we determine the optimal level of the toehold. Some particular environments may reduce the optimal level of toeholds: strong dilution mechanisms, soft financial constraints for the bidder, low financial frictions, a high legal protection for investors and not all-cash payment methods. We provide empirical evidence that support our predictions.

Keywords: Toeholds; Takeover; Asymmetric Information; LBO; Financial Constraints; Investor (search for similar items in EconPapers)
Date: 2023-12
Note: View the original document on HAL open archive server: https://hal.science/hal-04604654v1
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Working Paper: Strategic Toeholds in Takeovers (2023)
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