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Toeholds and Takeovers

Jeremy Bulow, Ming Huang and Paul Klemperer
Journal of Political Economy
Vol. 107, No. 3 (June 1999), pp. 427-454
DOI: 10.1086/250068
Stable URL: http://www.jstor.org/stable/10.1086/250068
Page Count: 28
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Toeholds and Takeovers
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Abstract

Toeholds have an enormous impact in “common‐value” takeover battles, such as those between two financial bidders. This contrasts with the small impact of a toehold, in a “private‐value” auction, Our results are consistent with empirical findings that a toehold helps a buyer win an auction, sometimes very cheaply. A controlling minority shareholder may therefore be effectively immune to outside offers. A target may benefit by requiring “best and final” scaled‐bid offers or by selling a cheap toehold or options to a “white knight,” Our analysis extends to regulators selling “stranded assets,” creditors bidding in bankruptcy auctions, and so forth.

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