Optimal Takeover Contests with Toeholds

This paper characterizes how a target rm should be sold when raiders have prior stakes in its ownership (toeholds). We nd that the optimal mechanism needs to be implemented by a non-standard auction which imposes a bias against buyers with high toeholds. This discriminatory procedure is so that the target s average sale price is increasing in both the size of the common toehold and the asymmetry in these stakes. Furthermore, a simple negotiation-based mechanism replicates the main properties of the optimal procedure and outperforms, in terms of average selling price, the standard auctions commonly used in takeover battles