The Strategic Role of Debt in Takeover Contests

Chowdhry, B and Nanda, V (1993) The Strategic Role of Debt in Takeover Contests. The Journal of Finance, 48 (2). pp. 731-745. ISSN 0022-1082

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In a takeover contest, the presence of bidders' existing debtholders, if they can be expropriated by issuing new debt with equal or senior priority, allows bidders to commit to bid more than their valuation of the target. Such commitment can be beneficial because it deters potential entry by subsequent bidders and may allow a first bidder to acquire the target at a bargain price. The cost is that if entry by subsequent bidders does nevertheless take place, because the first bidder has committed himself to bid high premia, a bidding war ensues resulting in offers that may involve excessive premia, i.e., bids that are larger than the bidders' valuation of the target.

Item Type: Article
Additional Information: The research article was published by the author with the affiliation of UCLA Anderson School
Subjects: Finance
Date Deposited: 03 Aug 2023 20:47
Last Modified: 03 Aug 2023 20:47

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