Hostile versus Friendly Takeovers
Bibliographic Data
| ID | 9720919 |
|---|---|
| Authors | Monika Schnitzer (0000-0002-6905-466X, corresponding author) |
| Year | 1996 |
| Volume | 63 |
| Issue | 249 |
| Pages | 37 |
| Publication date | 1996-02-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | JSTOR (PUBLISHER) |
| DOI | 10.2307/2554633 |
| OpenAlex | W1670472357 |
| Language | EN |
| Citations received | 1 |
| References cited | 3 |
The paper analyses the choice of a raider between a hostile and a friendly takeover. If the target company's manager has private information about the scope for efficiency gains, it is shown that the raider may prefer a hostile acquisition even if transaction costs for a friendly takeover are much smaller. The raider actually chooses between a (hostile) tender offer to uninformed shareholders and (friendly) merger negotiations with the informed manager. I show how the uncertainty about potential efficiency gains, the manager's preference for con- trol, the number of shares held by the manager and transaction costs affect the raider's choice. The takeover wave of the 1980s has stimulated many empirical and theoretical studies, most of which are concerned with issues such as the source of gains from takeovers and how these gains are divided between raider and target company. However, surprisingly little explanation has been provided for what determines whether a raider makes a hostile or a friendly takeover attempt if he wants to acquire control of the company.' In this paper we study the trade-off between these two acquisition methods from the point of view of a raider. For this purpose, we focus on one of the most important distinctions between hostile and friendly takeovers, which is the role of the incumbent management. In a 'hostile' takeover, a raider makes a tender offer directly to the shareholders of the target company, without consulting the incumbent management. Each shareholder decides individually whether or not to tender his shares. In contrast, a 'friendly' takeover has to be approved by shareholders and management. The most common friendly acquisition method is a merger.2 Prima facie, the empirical evidence suggests that hostile tender offers are not very attractive. The raider has to pay for expensive advertisements and mailings to shareholders in addition to high-cost services of merchant banks and lawyers.3 To succeed with his offer, he often has to overcome costly take- over defences, like poison pills, installed by the management prior to the take- over attempt. Furthermore, the raider typically ends up paying a high premium to shareholders. But friendly takeovers have their drawbacks as well. It is well known that the separation of ownership and control causes agency problems between the owner and the manager of a firm. The manager may prevent a merger that would be profitable for shareholders if he expects to lose some of his rents and perquisites. From this perspective, a hostile takeover could be seen as an alternative acquisition procedure which does not depend on the
Business · Control (management) · Corporate governance · Database transaction · Economics · Industrial organization · Management · Microeconomics · Negotiation · Scope (computer science) · Shareholder · Tender offer · Transaction cost · Accounting · Banking stability, regulation, efficiency · Computer Science · Corporate Finance and Governance · Finance · Law · Merger and Competition Analysis
| Highly cited | No |
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