Takeover contests with asymmetric bidders

Paul Povel, Rajdeep Singh

Research output: Contribution to journalReview articlepeer-review

47 Scopus citations

Abstract

Target firms often face bidders that are not equally well informed, which reduces competition, because bidders with less information fear the winner's curse more. We analyze how targets should be sold in this situation. We show that a sequential procedure can extract the highest possible transaction price. The target first offers an exclusive deal to a better-informed bidder, without considering a less well-informed bidder. If rejected, the target offers either an exclusive deal to the less well-informed bidder, or a modified first-price auction. Deal protection devices can be used to enhance a target's commitment to the procedure. (JEL G34, K22, D44).

Original languageEnglish (US)
Pages (from-to)1399-1431
Number of pages33
JournalReview of Financial Studies
Volume19
Issue number4
DOIs
StatePublished - Dec 2006

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