Takeover Deterrence with Large Shareholding - How Large is Deterrent Enough?
19 Pages Posted: 28 Oct 2010
Date Written: October 27, 2010
In many emerging economies, companies are controlled by founding families and their descendants, who hold large shareholdings to maintain control. Taking the owner’s perspective, I aim to ascertain the minimal stakes necessary to be held by the owner to deter hostile takeovers. I model the takeover process as a two-party bargaining game between the owner and a prospective acquirer. The model delivers the counter-intuitive implication that higher the value of the firm, lower are the minimal stakes necessary to be held by the owner to deter takeovers. This implies that, owners of more valuable firms need to hold lesser stakes to deter takeovers. Further, from the acquirer’s perspective, possession of toehold could lead to overbidding by the acquirer, which is proportional to the toehold.
Keywords: Takeovers, ownership, deterrence, bargaining, large shareholding, toehold
JEL Classification: G34
Suggested Citation: Suggested Citation