Imperfect Information and the Tender Offer Auction
- Creators
- Schwartz, Alan
Abstract
Managers of companies for which takeover bids have been or are likely to be made--"targets"--engage in a variety of tactics designed to minimize the likelihood of a takeover or increase the price an acquirer must ultimately pay. The welfare effects of these tactics are in dispute. This paper considers one such tactic, the running of "auctions" by managers of a target after an initial bid has been made; an auction is held if, as is often the case, the target's managers can interest other companies in bidding. This paper argues that auctions reduce welfare because they dampen search for suboptimally run firms, and do not have a comparative advantage over unregulated markets in moving corporate assets to their highest valued uses. Further, the shareholders of targets do not have property rights to the gains from takeovers that auctions could be viewed as protecting, Hence, the law that now permits auctions to occur should be changed.
Additional Information
Maurice Jones, Jr. Professor of Law, U. S. C. Law Center; Professor of Law and Social Science, California Institute of Technology. I am grateful to Jeff Strnad for extremely helpful suggestions. Richard Craswell, Michael Levine and Matthew Spitzer made useful comments on an earlier version of the model set out in Part IA, infra.Attached Files
Submitted - sswp566.pdf
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Additional details
- Eprint ID
- 81504
- Resolver ID
- CaltechAUTHORS:20170915-155631380
- Created
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2017-09-19Created from EPrint's datestamp field
- Updated
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2019-10-03Created from EPrint's last_modified field
- Caltech groups
- Social Science Working Papers
- Series Name
- Social Science Working Paper
- Series Volume or Issue Number
- 566