Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 634: Acquisiton Strategies: Empirical Evidence of Outsider-Toeholds

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: Theoretically, cross ownership may mitigate mergers, i.e. market concentrations. Holding a share in a competing firm before the acquisition of another firm, outsider-toehold, is more profitable in some market constellations, due to the positive externality on the outsider (competing) firm when a merger occurs. The purposes of this paper are to empirically observe when US firms buy outsider-toeholds and through event-studies estimate the gains of buyers, outsider firms and competitors when firms holding outsider-toeholds merge.

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

JEL-codes: G34; L12; L13; L41

29 pages, January 24, 2005

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