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OPTIMAL BIDDING FOR TENDER OFFERS
Authors:Naveen Khanna
Abstract:
By modeling tender offers as auctions in which bidders arrive sequentially, I show that the first bidder includes a high premium in its opening bid in an attempt to freeze out potential competitors. When expected competition goes up, the premium offered increases as does target shareholder welfare, while bidders suffer. Also, total synergy gains generated increase with competition. Including a premium in the opening bid remains optimal for the first bidder when target management is permitted to resist. Target management's ability to resist, though, benefits target shareholders even when resistance is not actually observed. When agency costs are introduced, the effect of managerial resistance on target shareholder welfare becomes ambiguous.
Keywords:
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