by Riccardo Calcagno and Sonia Falconieri; CeRP WP N. 132/13
This paper investigates the effect of potential competition on takeovers which we model as a bargaining game with alternating offers where calling an auction represents an outside option for each bidder at each stage of the game. The model aims to answer three main questions: who wins the takeover? when? and how? Our results are able to explain why the takeover premium resulting from a negotiated deal is not significantly different from that resulting from an auction, and why tender offers are rarely observed in reality. Furthermore, the model allows us to draw conclusions on how other dimensions of the takeover process, such as termination fees, target resistance and tender offer costs, affect its dynamics and outcome.
published: March 2013