Review of Financial Studies Vol. 2 No. 4 1989
Facilitation of Competing Bids and the Price of a Takover Target
Abstract
[We present a model of corporate acquisitions in which initially uninformed bidders must incur costs to learn their (independent) valuations of a potential takeover target. The first bidder makes either a preemptive bid that will deter the second bidder from investigating or a lower bid that will induce the second bidder to investigate and possibly compete. We show that the expected price of the target may be higher when the first bidder makes a deterring bid than when there is competitive bidding. Hence, by weakening the first bidder's incentive to choose a preemptive bid, regulatory and management policies to assist competing bidders may reduce both the expected takeover price and social welfare.]
- Volume
- 2
- Issue
- 4
- Pages
- 587-606
- Sources
- bibtex:phds-export.bib