A model of takeover price: a comparative analysis of the bidder’s strategies

We develop a model of the takeover offer price in which the acquirer has a choice between (1) a dissuasive or minimum price, (2) a signaling or mimicking strategy, and (3) a hostile or friendly offer. This last consideration is important in France, where most of the acquisitions have previously received the agreement of the target\'s management. The takeover is modeled as an auction between two acquirers with two types (high or low synergies). The alternative strategies are specified following the perfect bayesian equilibrium requirements for signaling games. The hostile offer analysis shows principally that the dissuasive strategy is always preferred when information costs are high (the costs engaged by the bidder to know his target\'s valuation), and that the signaling strategy is not always the most profitable, even for the high type bidder. The friendly offer is modeled in a value maximisation context, and negotiation constitutes a free mechanism to obtain information, for both the target and the bidder. Consequently, this offer appears to be the equilibrium strategy as soon as information cost exists.