Advising Shareholders in Takeovers
University of Pennsylvania - Finance Department
This paper studies the advisory role of the board in takeovers. Corporate boards can alert target shareholders when a takeover offer is inadequate and assist them to coordinate their collective decision. The analysis relates the characteristics of the bidder and the target firm to the influence the board has on target shareholders and the value of their shares, and shows that they can both increase with the board's bias. Importantly, the board can be effective even if in equilibrium its recommendation is uninformative and ignored by shareholders. The analysis also provides a novel rationale against the use of takeover defenses.
Number of Pages in PDF File: 73
Keywords: Takeover, Tender Offer, Merger, Advice, Communication, Recommendation, Board of Directors, Cheap-Talk, Coordination, Free-riding
JEL Classification: D82, D83, G34
Date posted: June 20, 2011 ; Last revised: January 31, 2014