Competition and Dynamics of Takeover Contests
EMLYON Business School; Center for Research on Pensions and Welfare Policies (CeRP); Collegio Carlo Alberto
Cass Business School
October 12, 2011
Paris December 2011 Finance Meeting EUROFIDAI - AFFI
The paper investigates the impact of competition on the outcome of takeover contests characterized by a) bidders with different attitudes toward the target, i.e. friendly versus hostile bidders; and b) different modes of completing the deal, namely through private negotiations, auctions or tender offers. This environment is modeled as a bargaining game with alternating offers where calling an auction represents an outside option for each bidder at each stage of the game. The model aims then to answer three main questions: who wins the takeover? when? and how? Additionally, the richness of the model enables us to derive predictions on the resulting takeover premia as well as to draw conclusions on how other dimensions of the takeover process, such as termination fee and tender offer costs, affect its dynamics and outcome.
Number of Pages in PDF File: 31
Keywords: mergers and acquisitions, bargaining, outside options
JEL Classification: G34, D44, C7working papers series
Date posted: October 12, 2011
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