Facilitation of Competing Bids and the Price of a Takeover Target
Review of Financial Studies
1989
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 bidderfrom 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.
- DOI
- 10.1093/rfs/2.4.587
- Volume
- 2 (4)
- Pages
- 587-606
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref