News Column

Studies from University of Los Andes Update Current Data on Corporate Finance (Getting to know each other: The role of toeholds in acquisitions)

July 5, 2014



By a News Reporter-Staff News Editor at Investment Weekly News -- New research on Corporate Finance is the subject of a report. According to news reporting out of Santiago, Chile, by VerticalNews editors, research stated, "We analyze the role of toeholds (non-controlling but significant equity stakes) as a source of information for a bidder. A toehold provides an opportunity to interact with the target and its management and in the process get a better sense of the possible synergies from a merger or takeover."

Our news journalists obtained a quote from the research from the University of Los Andes, "A bidder considering taking over a target will take a toehold beforehand if the informational benefits are large. Our model makes the following predictions: (i) a toehold is more beneficial if a target is opaque, i.e., if it is generally harder to value potential synergies with the target; (ii) a toehold is incrementally more beneficial if a bidder initially finds it harder than others to assess the value of potential synergies; (iii) that incremental benefit is less important, however, if the target is opaque; and (iv) the benefits from having a toehold are smaller if the number of potential rival bidders is higher. We test these predictions using a large sample of majority acquisitions of private and public companies for which we have information regarding whether the acquirer had a toehold in the target company prior to the majority acquisition."

According to the news editors, the research concluded: "We find evidence consistent with our hypotheses, and thus with the idea that potential acquirers of a target use toeholds to improve their information about possible synergies with the target."

For more information on this research see: Getting to know each other: The role of toeholds in acquisitions. Journal of Corporate Finance, 2014;26():201-224. Journal of Corporate Finance can be contacted at: Elsevier Science Bv, PO Box 211, 1000 Ae Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Journal of Corporate Finance - www.elsevier.com/wps/product/cws_home/524467)

Our news journalists report that additional information may be obtained by contacting P. Povel, Los Andes University, Sch Business & Econ, Santiago, Chile.

Keywords for this news article include: Chile, Santiago, South America, Corporate Finance

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Source: Investment Weekly News