A Theory of Hostile Takeovers

35 Pages Posted: 17 May 2006

See all articles by Augusto Schianchi

Augusto Schianchi

University of Parma - Dipartimento di Economia

Andrea Mantovi

University of Parma - Department of Economics

Date Written: May 2006

Abstract

In this paper, a consistent picture of the multifaceted mechanism of a hostile leveraged takeover is provided. The analysis points out two basic issues. The first is the financial problem caused by the leveraged acquisition, which calls for detailed strategic planning in order to ascertain the feasibility of the operation with respect to the capital structure of the target company. The second issue is the agency problem caused by the delegation of the acquisition to a raider, who possesses the unique skills needed for such a task. A coherent framework has thus been developed, which enables the raider to evaluate different potential targets and the lender to guarantee the optimal behaviour of the agent.

Keywords: Takeover, Debt/Equity ratio, Principal-Agent model

JEL Classification: G32, G34, G24, D82

Suggested Citation

Schianchi, Augusto and Mantovi, Andrea, A Theory of Hostile Takeovers (May 2006). Available at SSRN: https://ssrn.com/abstract=901956 or http://dx.doi.org/10.2139/ssrn.901956

Augusto Schianchi (Contact Author)

University of Parma - Dipartimento di Economia ( email )

Via Kennedy 6
Parma, Parma 43100
Italy

Andrea Mantovi

University of Parma - Department of Economics ( email )

Via Amendola 10
Parma, 43100
Italy

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