Leaks and Takeovers

51 Pages Posted: 16 Jan 2020 Last revised: 28 Apr 2020

See all articles by Martin Szydlowski

Martin Szydlowski

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: December 29, 2019

Abstract

I present a cheap talk model of information leaks in takeovers. Takeover targets strategically leak information about the value of synergies to attract an additional bidder. Targets with high synergies leak exaggerated information, cause a runup, and are sold in an auction. Targets with low synergies do not leak and are sold to a single acquirer. Traditional takeover defenses backfire, by increasing the likelihood that the target is sold to a single acquirer, while toeholds increase the acquirer's revenue by discouraging leaks. Enforcement of insider trading reduces the likelihood of leaks, reduces runups, and increases efficiency in the takeover market.

Keywords: Cheap Talk, Takeovers, Runups, Auctions, Negotiations

JEL Classification: G34, G38, D82

Suggested Citation

Szydlowski, Martin, Leaks and Takeovers (December 29, 2019). Available at SSRN: https://ssrn.com/abstract=3511097 or http://dx.doi.org/10.2139/ssrn.3511097

Martin Szydlowski (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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