Toeholds and entrenchment

We document new evidence concerning the role of toeholds. Toeholds relative to the target management-controlled block are increasing in entrenchment and decreasing in ‘accept’ recommendations. Entrenched is inferred present for target management-controlled block-holdings of less than 25 per cent of outstanding voting stock. Toeholds relative to the principal independentlyowned block are increasing in the probability of acceptance or bid success but decreasing in entrenchment, but this is largely attributable to the phenomenon of larger principal shareholdings as entrenchment increases. Toehold size alone has no explanatory power. The offer price has no strategic role in an entrenchment scenario. We find no evidence that either offer price or toehold deter rival bids