88 S. Dasgupta and R.G. Hansen
4.2.1. Returns to bidders and targets 109
4.2.2. The auction process in the market for corporate control 113
4.2.3. Auctions versus negotiations 116
4.2.4. Pre-emptive bidding 116
4.2.5. Modelling auctions of companies 117
4.3. Means-of-payment 118
4.4. Toeholds 119
4.5. Bidder heterogeneity and discrimination in takeover auctions 123
4.6. Merger waves 126
4.7. Auctions in bankruptcy 129
4.8. Share repurchases 131
4.9. Auction aspects of initial public offerings (IPOs) 132
4.10. The spectrum auctions and the role of debt in auctions 136
4.11. Advanced econometrics of auction data 137- Conclusion 138
References 140
Abstract
This paper reviews the applications of auction theory to corporate finance. It starts
with a review of the main auction theory frameworks and the major results. It then
goes on to discuss how auction theory can be applied, in the context of the market for
corporate control, not only to “inform” a company’s board or regulators, but also to
understand some of the observed empirical evidence on target and bidder returns. It
then considers the role of preemptive bidding, stock versus cash offers, the effect of
toeholds on bidding behavior, the effect of bidder heterogeneity and discrimination in
auctions, merger waves, bankruptcy auctions, share repurchases and “Dutch” auctions,
IPO auctions, and the role of debt in auctions. It concludes with a brief discussion of
the econometrics of auction data.
Keywords
bidders, targets, private value, common value, winner’s curse, auctions, bidding,
takeovers, mergers and acquisitions, toeholds, bankruptcy auctions, IPO auctions