Similarity between Bidders in Takeover Contests



Because bidders in takeovers often share some resources and post-acquisition strategies, their valuations of the target can be interdependent. This paper analyzes similarities between bidders in a sequential-entry takeover contest in which potential acquirers’ private valuations of the target are correlated. We show how the interdependence of valuations influences—through the learning externalities of early bids and the intensity of competition—the bidding strategies and takeover outcomes. High bids to preempt potential competitors are most likely to occur for non-related bidders, and are less likely for similar and dissimilar bidders. But the level of preemptive bids increases monotonically in the degree of similarity. Expected target return first increases in correlation and then decreases at high positive correlation. The opposite happens for expected acquirer return, it decreases in correlation and then increases at high positive correlation.
To find an updated schedule for the upcoming seminars, see the seminar website.
The Brown Bag Seminars are sponsored by ERIM.
Contact information:
Sebastian Gryglewicz