The Division of Takeover Gains in Sweden

The paper estimates the gains from takeover in a sample of Swedish public- tender offers and analyses its division between target and bidder shareholders. It finds that target and bidder shareholders collectively gain 6% in merger bids and 3% in minority buyouts, and that target shareholders collect approximately 80% of the gain in both transaction types. The skewed division of the gain is surprising given that the tender offer prices in our data are bilaterally negotiated between the bidder and the target. A free-riding-type model designed for the Swedish institutional environment is developed to explain how bilateral negotiations can systematically give one party a larger share of the gain from trade.