Not Available for Download

Signaling in Tender Offer Games

EFA 2009 Bergen Meetings Paper

FMG Discussion Paper No. 655

Posted: 13 Feb 2009 Last revised: 9 Oct 2013

Mike Burkart

Swedish House of Finance; London School of Economics and Political Science, Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Samuel Lee

Santa Clara University - Leavey School of Business; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2012

Abstract

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

Suggested Citation

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

Mike C. Burkart (Contact Author)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/default_static.htm

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

London School of Economics and Political Science, Department of Finance ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Samuel Lee

Santa Clara University - Leavey School of Business

500 El Camino Real
Santa Clara, CA California 95053
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Paper statistics

Abstract Views
1,363