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Journal of Finance Vol. 65 No. 3 2010

Stapled Finance

Paul Povel; Rajdeep Singh1,2,3,4,5,6,7,8,9,10,11

1 Claremont McKenna College · 2 University of Iowa · 3 Conference Board · 4 University of Minnesota · 5 University of Arizona · 6 Vetenskap I Skolan · 7 ID-FISH Technology (United States) · 8 Towson University · 9 University of Houston · 10 University of Virginia · 11 Arizona State University

Abstract

“Stapled finance” is a loan commitment arranged by a seller in an M&A setting. Whoever wins the bidding contest has the option (not the obligation) to accept this loan commitment. We show that stapled finance increases bidding competition by subsidizing weak bidders, who raise their bids and thereby the price that strong bidders (who are more likely to win) must pay. The lender expects not to break even and must be compensated for offering the loan. This reduces but does not eliminate the seller's benefit. It also implies that stapled finance loans will show poorer performance than other buyout loans.

DOI
10.1111/j.1540-6261.2010.01557.x
Volume
65
Issue
3
Pages
927-953
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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