Share Tendering Strategies and the Success of Hostile Takeover Bids

David Hirshleifer and Sheridan Titman

Journal of Political Economy, April 1990


This paper presents a model of tender offers in which the bid perfectly reveals the bidder’s private information about the size of the value improvement that can be generated by a takeover. We argue that bidders with greater improvements will offer higher premia to ensure that sufficient shares are tendered to obtain control. The model relates announcement date returns and takeover success or failure to the amount bid, the initial shareholdings of the bidder, the number of shares the bidder attempts to purchase, the dilution of minority shareholders, and managerial opposition. We show that managerial defensive measures will sometimes increase the probability of the offer’s success, either by raising the incentive to bid high or by decreasing the asymmetry of information about the improvement.

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