Abstract

http://ssrn.com/abstract=422020
 
 

References (43)



 
 

Citations (16)



 


 



Optimal Toeholds in Takeover Contests


Eitan Goldman


Indiana University - Department of Finance

Jun Qian


Boston College - Finance Department; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

March 2004


Abstract:     
In this paper we offer an explanation for the empirical anomaly that most raiders do not acquire the maximum possible toehold prior to announcing a takeover bid. By endogenously modeling the target value following an unsuccessful takeover we demonstrate that a raider may optimally choose to acquire a small toehold even if the toehold acquisition does not drive up the pre-tender offer target price. This occurs because although a large toehold increases profits if the takeover succeeds it also conveys a higher level of managerial entrenchment, and hence a lower firm value, if the takeover fails. In the paper we derive new predictions regarding how the optimal toehold and how target firm value following a failed takeover vary in the cross section. Extending the basic model we examine the impact of the presence of a rival bidder and of dilution on the initial bidder's toehold strategy.

Number of Pages in PDF File: 43

Keywords: Toehold, entrenchment, free-rider problem, takeover, tender offer

JEL Classification: G34, D8, K22

working papers series


Download This Paper

Date posted: August 3, 2003  

Suggested Citation

Goldman, Eitan and Qian, Jun, Optimal Toeholds in Takeover Contests (March 2004). Available at SSRN: http://ssrn.com/abstract=422020 or http://dx.doi.org/10.2139/ssrn.422020

Contact Information

Eitan Goldman
Indiana University - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-856-0749 (Phone)
Jun Qian (Contact Author)
Boston College - Finance Department ( email )
Wallace E. Carroll School of Management
330 Fulton Hall
Chestnut Hill, MA 02467
United States
617-552-3145 (Phone)
617-552-0431 (Fax)
HOME PAGE: http://www2.bc.edu/~qianju
University of Pennsylvania - Wharton Financial Institutions Center
2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States
HOME PAGE: http://fic.wharton.upenn.edu/fic/
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

Feedback to SSRN


Paper statistics
Abstract Views: 1,184
Downloads: 241
Download Rank: 69,562
References:  43
Citations:  16

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.984 seconds