SFB 303 Discussion Paper No. A - 339

Author: Schnitzer, Monika
Title: Hostile versus Friendly Takeovers
Abstract: Empirical evidence shows that the transaction costs caused by a hostile takeover exceed by far those of a friendly one. This paper analyzes why a raider who has the choice between both acquisition methods may prefer the less efficient hostile takeover. The central argument rests on the assumption that shareholders have less information about the value of their firm than the incumbent management. Thus the raider chooses actually between two different bargaining situations, a tender offer to uniformed shareholders and a merger negotiation with the informed management. It is shown that from the raider's point of view the hostile takeover becomes increasingly attractive the lower the transaction cost disadvantage, the higher the uncertainty about the value of the firm, the smaller the manager's shareholding and the higher the manager's preference for control.
Keywords: Takeovers, Signalling
JEL-Classification-Number: 026, 611, 511
Creation-Date: May 1991
Unfortunately this paper is not available. Please order a hardcopy via e-mail.

SFB 303 Homepage

23.03.1998, Webmaster