Toehold acquisitions as option games

• Type: Article in International Scientific Journal
• Date: 2021

Authors

Lacerda, J (Author) Other; Paulo Jorge Pereira (Author) FEP; Rodrigues, A (Author) Other

Journal

Title: Economics Letters

Vol. 209

ISSN: 0165-1765

Publisher: Elsevier

Indexing

ISI Web of Knowledge - 0 Citations

Scopus - 0 Citations

Other information

Authenticus ID: P-00V-H9K

DOI: 10.1016/j.econlet.2021.110093

Abstract (EN): This paper studies how a pre-bid minority ownership (toehold) in the target firm can improve the acquirer's position in the takeover process by reducing the information asymmetry. Using a dynamic real options approach to compare the takeover options (with and without a toehold), the bidder can optimally choose the acquisition mode and the toehold size. Toehold acquisitions are more likely to occur under low market uncertainty, low expected synergies and high synergies uncertainty. These results suggest that managers' overconfidence, market and synergies uncertainty, and asymmetry of information can help explaining the choice of toeholds when defining the acquisition strategy.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 6