Toeholds, Bid Jumps, and Expected Payoffs in Takeovers

51 Pages Posted: 20 Feb 2001 Last revised: 4 May 2009

See all articles by Sandra Betton

Sandra Betton

Concordia University, Quebec - Department of Finance

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)


We estimate sequentially outcome-probabilities and expected payoffs associated with first-, second- and final bids in a large sample of tender offer contests. Rival bids arrive quickly and produce large bid-jumps. Greater bidder toeholds (pre-bid ownership of target shares) reduce the probability of competition and target resistance and are associated with both lower bid-premiums and lower pre-bid target stock-price runups. The expected payoff to target shareholders is increasing in the bid-premium and in the probability of competition, but decreasing in the bidder's toehold. The initial bidder's expected payoff is significantly positive in the "rival-bidder-win" outcome, in part reflecting gains from the pending toehold-sale. Despite these dramatic toehold effects, only half of the initial bidders acquire toeholds.

Keywords: Takeover contest, tender offer, toeholds, bidding, bid jumps, rival bidders

JEL Classification: G34

Suggested Citation

Betton, Sandra and Eckbo, B. Espen, Toeholds, Bid Jumps, and Expected Payoffs in Takeovers. Review of Financial Studies, Vol. 13, 841-882, 2000, Tuck School of Business Working Paper, Available at SSRN:

Sandra Betton

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
514-848-2783 (Phone)
514-848-4500 (Fax)

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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