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Toeholds, bid premiums and bid success in public takeovers, Sweden 1997-2012

Davidsson, Olle LU and Oddbjörn, Fredrik (2013) FEKN90 20131
Department of Business Administration
Abstract
This thesis focuses on public takeovers and aim to disclose the revealing effects on a bid contest caused by a bidder’s initial ownership in the target company, the so-called toehold. We analyse the toehold’s impact on contest characteristics and focus on its ability to determine (i) the bid premium required to acquire the target and (ii) the expected probability of a successful outcome in the bid contest.
We apply financial theory to outline bidding behaviour as well as observable dynamics in a takeover contest with toehold bidders. We include a discussion on the competitive climate in a takeover contest in relation to the different toehold strategies available. Theories have historically been inconclusive on the direct effects of a... (More)
This thesis focuses on public takeovers and aim to disclose the revealing effects on a bid contest caused by a bidder’s initial ownership in the target company, the so-called toehold. We analyse the toehold’s impact on contest characteristics and focus on its ability to determine (i) the bid premium required to acquire the target and (ii) the expected probability of a successful outcome in the bid contest.
We apply financial theory to outline bidding behaviour as well as observable dynamics in a takeover contest with toehold bidders. We include a discussion on the competitive climate in a takeover contest in relation to the different toehold strategies available. Theories have historically been inconclusive on the direct effects of a toehold in a takeover contest. We argue that findings evident in research on the US markets could not singlehandedly explain the results for any given country and shareholder structure. Takeover contests are complex processes and the regulatory framework and shareholder structure in which the target operates could have a major influence on the result. By using quantitative methods, we therefore challenge current theoretical relationships on a sample of 202 takeovers attempts of publicly listed firms in Sweden in the period 1997-2012, a market known for a focused shareholder structure and strict disclosure of holdings.
The results shown in the thesis indicate a clear relationship and invigorate for new considerations on the subject. We provide firm evidence that toehold bidders have systematically acquired firms at a lower premium in relation to non-toehold bidders. In addition, even though the target is bought at a lower premium, toehold bidders have shown indications to have a higher probability to succeed in their takeover attempts. This perplex finding is discussed and it seems that deterring effects on rival bidders entrance is of high importance. Furthermore, the finding encourages an assessment of the historically evolved Swedish conditions for ownership in relation to the proposed inefficiency in the market for corporate control. (Less)
Please use this url to cite or link to this publication:
author
Davidsson, Olle LU and Oddbjörn, Fredrik
supervisor
organization
course
FEKN90 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Takeover, Toehold, Bid Premium, Bid Success, Sweden
language
English
id
3918740
date added to LUP
2013-08-12 16:18:21
date last changed
2013-08-12 16:18:21
@misc{3918740,
  abstract     = {This thesis focuses on public takeovers and aim to disclose the revealing effects on a bid contest caused by a bidder’s initial ownership in the target company, the so-called toehold. We analyse the toehold’s impact on contest characteristics and focus on its ability to determine (i) the bid premium required to acquire the target and (ii) the expected probability of a successful outcome in the bid contest. 
We apply financial theory to outline bidding behaviour as well as observable dynamics in a takeover contest with toehold bidders. We include a discussion on the competitive climate in a takeover contest in relation to the different toehold strategies available. Theories have historically been inconclusive on the direct effects of a toehold in a takeover contest. We argue that findings evident in research on the US markets could not singlehandedly explain the results for any given country and shareholder structure. Takeover contests are complex processes and the regulatory framework and shareholder structure in which the target operates could have a major influence on the result. By using quantitative methods, we therefore challenge current theoretical relationships on a sample of 202 takeovers attempts of publicly listed firms in Sweden in the period 1997-2012, a market known for a focused shareholder structure and strict disclosure of holdings. 
The results shown in the thesis indicate a clear relationship and invigorate for new considerations on the subject. We provide firm evidence that toehold bidders have systematically acquired firms at a lower premium in relation to non-toehold bidders. In addition, even though the target is bought at a lower premium, toehold bidders have shown indications to have a higher probability to succeed in their takeover attempts. This perplex finding is discussed and it seems that deterring effects on rival bidders entrance is of high importance. Furthermore, the finding encourages an assessment of the historically evolved Swedish conditions for ownership in relation to the proposed inefficiency in the market for corporate control.},
  author       = {Davidsson, Olle and Oddbjörn, Fredrik},
  keyword      = {Takeover,Toehold,Bid Premium,Bid Success,Sweden},
  language     = {eng},
  note         = {Student Paper},
  title        = {Toeholds, bid premiums and bid success in public takeovers, Sweden 1997-2012},
  year         = {2013},
}