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Takeover Contests with Asymmetric Bidders

Author

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  • Paul Povel
  • Rajdeep Singh
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) Copyright 2006, Oxford University Press.

Suggested Citation

  • Paul Povel & Rajdeep Singh, 2006. "Takeover Contests with Asymmetric Bidders," The Review of Financial Studies, Society for Financial Studies, vol. 19(4), pages 1399-1431.
    • Handle: RePEc:oup:rfinst:v:19:y:2006:i:4:p:1399-1431
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    File URL: http://hdl.handle.net/10.1093/rfs/hhj034
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    More about this item

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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