Signalling in tender offer games

Burkart, Mike ORCID: 0000-0002-0954-4499 and Lee, Samuel (2010) Signalling in tender offer games. Financial Markets Group Discussion Papers (655). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We examine whether a bidder can use tender o§er terms to signal post-takeover security benefits. Neither restricted bids nor cash-equity offers allow the bidder to reveal private information. Since atomistic shareholders extract all the gains in security benefits, signaling equilibria are subject to a constraint that is absent from bilateral trade models: The bidder must enjoy gains from trade that are excluded from bargaining (private benefits) but can nonetheless be relinquished. Dilution, debt financing, and toeholds are viable signaling devices because they imply private benefits that depend on security benefits in a predictable manner. In these signaling equilibria, lower-valued types must forgo a larger fraction of their private gains, and these costs can prevent some takeovers. Strikingly, the separation of cash flow and voting rights overcomes the asymmetric information problem. Offers that include derivatives allow for a complete separation and can therefore implement the symmetric information outcome.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2010 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited:	29 Jun 2023 12:30
Last Modified:	01 Apr 2024 08:00
URI:	http://eprints.lse.ac.uk/id/eprint/119085

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