The Dynamics of Takeovers through Exchange Offers in the Presence of Competition

This study examines the characteristics of takeovers in the presence of competition using a threestage model. We first investigate the property of the equilibrium of mergers and takeovers in a frictionless market, and then analyze the effect that the existence of the competitors had on this process. We apply a general surplus function, rather than a specific one, eliminating the modifying effects of this factor from our study. Our model predicts that the existence of heavy competition in the takeover increases the number of unsuccessful or incomplete deals. Furthermore, we find that the shareholders of the target in a competitive market can choose the timing of accepting an offer, without the need to observe the surplus benefit of the deal. Our model shows that the presence of competition does not always provide the target shareholders with an advantage