Stock selling during takeovers

Guillem Ordóñez-Calafí; John Thanassoulis

doi:10.1016/j.jcorpfin.2019.101550

Stock selling during takeovers

Guillem Ordóñez-Calafí^*, John Thanassoulis

^*Corresponding author for this work

School of Accounting and Finance - Business School

Research output: Contribution to journal › Article (Academic Journal) › peer-review

3 Citations (Scopus)

77 Downloads (Pure)

Abstract

Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding firms, anticipating the pressurising effect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We find that increasing the influence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders.

Original language	English
Article number	101550
Number of pages	15
Journal	Journal of Corporate Finance
Volume	60
Early online date	12 Dec 2019
DOIs	https://doi.org/10.1016/j.jcorpfin.2019.101550
Publication status	Published - 1 Feb 2020

Research Groups and Themes

AF Corporate Finance

Keywords

Takeovers
takeover resistance
shareholder coordination
market feedback
global games

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10.1016/j.jcorpfin.2019.101550

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This is the author accepted manuscript (AAM). The final published version (version of record) is available online via Elsevier at https://www.sciencedirect.com/science/article/pii/S0929119919309344#! . Please refer to any applicable terms of use of the publisher.
Accepted author manuscript, 416 KBLicence: CC BY-NC-ND

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AB - Stock sales during takeover negotiations weaken the target board's ability to recommend against the takeover, i.e., to resist. Sophisticated shareholders therefore face a coordination problem when deciding whether to sell-out early; and their actions generate a feedback loop between trading volumes and takeover outcomes. Bidding firms, anticipating the pressurising effect of future share sales on the target board, may reduce their bids. We study these tensions theoretically. We find that increasing the influence of shareholders during the bidding process lowers equilibrium bids; elongates the bidding process; but raises the overall probability of bid acceptance; and raises expected premia for unsophisticated shareholders.

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KW - takeover resistance

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KW - market feedback

KW - global games

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Stock selling during takeovers

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Dr Guillem Ordonez-Calafi

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Stock selling during takeovers

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Dr Guillem Ordonez-Calafi

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