Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 630: Mergers by Partial Acquisition

Tobias Lindqvist
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Tobias Lindqvist: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: This paper evaluates partial acquisition strategies. The model allows for buying a share of a firm before the actual acquisition takes place. Holding a share in a competing firm before the acquisition of another firm, outsider-toehold, eliminates the insiders' dilemma, i.e. profitable mergers do not occur. This strategy may thus be more profitable for a buyer than acquiring entire firms at once. Furthermore, the insiders' dilemma arises from the assumption of a positive externality on the outsider firm and acquiring an outsider-toehold is thus a signal of an anti-competitive merger.

Keywords: Acquisition; Antitrust; Insiders' Dilemma; Mergers; Toeholds

JEL-codes: G34; L12; L13; L41

23 pages, October 20, 2004

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