Unique equilibrium in a model of takeovers involving block trades and tender offers

Abstract

Small shareholders face coordination problems during takeovers. Without common knowledge of a bidder's negotiation ability with an incumbent blockholder in support of a takeover, the probability of takeover success is uniquely determined if the private information available to small shareholders regarding the bidder's negotiation ability is precise enough. An analysis of the unique equilibrium demonstrates that the earmarked freeze-out amount and the expected amount of abnormal returns affect the takeover's outcome. Moreover, the effect of the blockholder's size on the takeover's outcome is determined by the relative size of the earmarked freeze-out amount and the expected amount of abnormal returns.