Getting to know each other: The role of toeholds in acquisitions

Povel, Paul; Sertsios, Giorgo

doi:10.1016/j.jcorpfin.2014.04.001

Cited by 30 publications

(18 citation statements)

References 24 publications

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“…One such situation where corporate cross-holdings occur in the U.S. is in the context of "toehold" bidders, where firms that intend to make an acquisition already hold a small percentage of the equity in the target firm. Toeholding is increasingly rare in the U.S., however, but has been the subject of considerable research (e.g., Mikkelson and Ruback, 1985;Shleifer and Vishny, 1986;Betton and Eckbo, 2000;Goldman and Qian, 2005;Povel and Sertsios, 2014). 6 Our empirical evidence demonstrates that the externality of general institutional cross-ownership also exists in M&A deals.…”

Section: Related Literaturementioning

confidence: 69%

Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions

Brooks

Chen

Zeng

2018

Journal of Corporate Finance

149

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This article provides new evidence on the important role of institutional investors in affecting corporate strategy. Institutional cross-ownership between two firms not only increases the probability of them merging, but also affects the outcomes of mergers and acquisitions (M&As). Institutional cross-ownership reduces deal premiums, increases stock payment in M&A transactions, and lowers the completion probabilities of deals with negative acquirer announcement returns. Furthermore, deals with high institutional crossownership have lower transaction costs and disclose more transparent financial statement information. The effect of cross-ownership on the total deal synergies and post-deal longterm performance is positive, which can be attributed to independent and non-transient cross-owners. Our findings are robust after mitigating the cross-ownership asymmetry concern. Overall, our results suggest that the growth of institutional cross-holdings in U.S. stock markets may greatly change corporate strategies and decision-making processes.

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Section: Related Literaturementioning

confidence: 69%

Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions

Brooks

Chen

Zeng

2018

Journal of Corporate Finance

149

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“…Because recent evidence suggests that termination fees held relatively constant during the 1990s (Boone and Mulherin 2007a), the focus should be on the cutoff t. Our model predicts that an increase in this threshold is possible if the presence of toehold θ in takeovers decreases. Evidence for the US market for corporate control confirms this prediction given that the frequency of initial stakes has declined dramatically in the last few decades (Povel and Sertsios 2014).…”

Section: Empirical Implicationsmentioning

confidence: 75%

“…This result then posits a toehold advantage for a potential buyer in the context of a negotiationbased takeover, different from that attributed to toeholds in the context of an auction-based takeover and related to either more aggressive bids(Burkart 1995;Singh 1998, Bulow et al 1999Loyola 2012b) or an informational advantage(Povel and Sertsios 2014).…”

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confidence: 85%

A Bargaining Model of Friendly and Hostile Takeovers

Loyola

Portilla

2016

Int Rev Finance

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A bargaining model is developed that characterizes the conditions under which a takeover will either be friendly, hostile, or unsuccessful when the target management can tilt the selling procedure toward a white knight. The conditions considered mainly involve private control benefits, toehold size, and breakup fees. Also established by the model are the conditions for an efficient takeover. The proposed framework of strong management influence on takeover outcome, an alternative modeling of hostility and the adoption of a negotiation procedure, rather than an auction setup with strong shareholder influence as in most of the existing literature, delivers new insights into the US market of corporate control, which are consistent with the available evidence

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“…(For details on the derivation, see the Internet Appendix. 13 ) As shown in Figure 1, the expected value of entry is increasing in K, and the probability of informed entry is decreasing in K. The assumption K = 1 (introduced below) seems reasonable: with higher values of K, the average realized value of 11 This model of noisy signals has been used in Povel and Singh (2010) to analyze stapled finance and in Povel and Sertsios (2014) to analyze toehold acquisitions prior to mergers. 12 The uninformed entrants' average realized value of entry increases if their signals are more informative, but it is below the average value realized by informed entrants as long as ϕ < 1.…”

Section: A Herdingmentioning

confidence: 99%

“…This model of noisy signals has been used in Povel and Singh () to analyze stapled finance and in Povel and Sertsios () to analyze toehold acquisitions prior to mergers.…”

mentioning

confidence: 99%

Boom and Gloom

Povel¹,

Sertsios²,

Kosová³

et al. 2016

The Journal of Finance

Self Cite

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We study the performance of investments made at different points of an investment cycle. We use a large data set covering hotels in the U.S., with rich details on their location, characteristics and performance. We find that hotels built during hotel construction booms underperform their peers. For hotels built during local hotel construction booms, this underperformance persists for several decades. We examine possible explanations for this long-lasting underperformance. The evidence is consistent with information-based herding explanations. * Paul Povel is with the University of Houston. Giorgo Sertsios is with Universidad de los Andes (Chile). Renáta Kosová is with Imperial College. Praveen Kumar is with the University of Houston. We would like to thank two anonymous referees, an anonymous associate editor, and the editor (Ken Singleton) for very helpful comments. We are also indebted to

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Getting to know each other: The role of toeholds in acquisitions

Cited by 30 publications

References 24 publications

Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions

Institutional cross-ownership and corporate strategy: The case of mergers and acquisitions

A Bargaining Model of Friendly and Hostile Takeovers

Boom and Gloom

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