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http://hdl.handle.net/2451/26714
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| Title: | TENDER OFFERS AND LEVERAGE |
| Authors: | Mueller, Holger M.
Panunzi, Fausto |
| Issue Date: | Jul-2003 |
| Series/Report no.: | S-CG-03-02 |
| Abstract: | We examine the role of leverage in tender offers for widely held firms.
Leverage allows raiders to appropriate part of the value gains arising
from takeovers, hence reducing the takeover premium and mitigating the
free-rider problem. Leveraged takeovers may thus be profitable even if
target shareholders are dispersed. Bankruptcy costs, incentive problems
on the part of the raider, and defensive leveraged recapitalizations and
asset sales by the target management all limit the raider’s
ability to borrow, thus shifting takeover gains to target shareholders
and reducing the takeover likelihood. While bankruptcy costs are a
social cost,the takeover premium is merely a wealth transfer to target
shareholders. As the raider does not maximize social welfare, he uses
too much debt compared to the social optimum. |
| URI: | http://hdl.handle.net/2451/26714 |
| Appears in Collections: | Corporate Governance
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