SFB 303 Discussion Paper No. A - 297
Author: Schnitzer, Monika
Title: Hostile Versus Friendly Takeovers
Abstract: The paper analyzes the optimal decision of a raider who can choose
between a hostile and a friendly takeover. Empirical evidence shows
that the transaction costs of a hostile takeover are much higher than
those of a friendly one. The question therefore arises why a raider
should ever wish to engage in a hostile takeover. The central argument
of the paper rests on the assumption that shareholders have less
information about the true value of their firm than the incumbent
management. A raider might prefer to make a hostile tender offer
directly to the uninformed shareholders rather than negotiating with
the informed management even if the transaction costs are higher. The
analysis shows furthermore how shareholders can use golden parachutes
and poison pills to improve their expected payoffs in a case of
takeover.
Keywords:
JEL-Classification-Number: 026, 611, 511
Creation-Date: May 1990
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