Takeover Contests with Asymmetric Bidders

50 Pages Posted: 25 Jul 2004

See all articles by Paul Povel

Paul Povel

University of Houston - Department of Finance, C.T. Bauer College of Business

Rajdeep Singh

University of Minnesota - Twin Cities - Carlson School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: November 2004

Abstract

Target firms are often faced with bidders that are not equally well informed. This reduces the competition between the bidders, since a less well informed bidder fears the winner's curse more. We analyze how a target should optimally be sold in the presence of asymmetric bidders. We show that a sequential procedure can extract the highest possible transaction price. The target first offers an exclusive deal to a better informed bidder, without considering a less well informed bidder. If rejected, the target either offers an exclusive deal to the less well informed bidder (now ignoring the better informed bidder), or it encourages every bidder to participate in a modified first-price auction. We discuss the key factors that affect the optimal procedure, how deal protection devices can mitigate commitment problems, and also some empirical implications.

Keywords: Takeovers, asymmetric bidders, MBOs, deal protection devices

JEL Classification: G34, K22, D44

Suggested Citation

Povel, Paul and Singh, Rajdeep, Takeover Contests with Asymmetric Bidders (November 2004). Available at SSRN: https://ssrn.com/abstract=565922 or http://dx.doi.org/10.2139/ssrn.565922

Paul Povel (Contact Author)

University of Houston - Department of Finance, C.T. Bauer College of Business ( email )

University of Houston
334 Melcher Hall
Houston, TX 77204
United States
713-743-4759 (Phone)

HOME PAGE: http://www.bauer.uh.edu/povel

Rajdeep Singh

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

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1061 (Phone)
612-626-1335 (Fax)

HOME PAGE: http://umn.edu/~rajsingh

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