Signaling in Tender Offer Games

Mike Burkart

Swedish House of Finance

Samuel Lee

New York University (NYU) - Leonard N. Stern School of Business; European Corporate Governance Institute (ECGI)

December 31, 2012

EFA 2009 Bergen Meetings Paper
FMG Discussion Paper No. 655

This paper examines how the interaction of bidder's private information and target shareholders' free-riding behavior affects the equilibrium outcomes and bid design in tender offers. While pooling equilibria always exist, separating ones emerge only in two scenarios. First, the bidder can reveal her type if she can commit to extract private benefits in a manner that is informative about the post-takeover security benefits. We discuss which exclusion mechanisms in practice satisfy these requirements. Second, allowing the bidder to use securities other than equity to unbundle cash flow and voting rights overcomes all frictions. Offers that include derivatives allow for perfect revelation and implement the symmetric information outcome.

Keywords: Signaling, Free-Rider Problem, Means of Payment, Restricted Bids, Two-dimensional Types

JEL Classification: G32

working papers series

Not Available For Download

Date posted: February 13, 2009 ; Last revised: October 9, 2013

Suggested Citation

Burkart, Mike and Lee, Samuel, Signaling in Tender Offer Games (December 31, 2012). EFA 2009 Bergen Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1342203 or http://dx.doi.org/10.2139/ssrn.1342203

Contact Information

Mike C. Burkart (Contact Author)
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm

Samuel Lee
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States
European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
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