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Using Auction Theory to Inform Takeover Regulation

Peter Cramton () and Alan Schwartz

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target's Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock- holders at a sale of the company." The Delaware courts' preference for auctions follows from two premises. First, a firm's managers should maximize the value of their shareholders' investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target's board should conduct an auction when at least two firms would bid sums that are nontrivially above the target's prebid market price.

Keywords: Auctions; Takeovers (search for similar items in EconPapers)
JEL-codes: D44 G34 (search for similar items in EconPapers)
Pages: 27 pages
Date: 1991, Revised 1998-06-09
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Published in Journal of Law, Economics and Organization, 7:1, Spring 1991, pages 27-53.

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Journal Article: Using Auction Theory to Inform Takeover Regulation (1991)
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