Competition and Dynamics of Takeover Contests

Abstract:     
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, C7

working papers series