Takeover bidding with toeholds: the case of the owner's curse

This article demonstrates that a potential acquirer with a toeholdbids aggressively and possibly overpays in equilibrium. Theaggressiveness of a bidder with a toehold increases furtherif he is able to renege on his winning bid. A bidder withouta toehold, however, responds by shading his bids. The targetfirm can increase competition and the expected sale price ifit only entertains nonretractable bids. This article providestestable implications on the probability of bidder success,stock price reactions on bid revisions and on resolution ofthe contest, and expected gains to bidders and the target firm.