《金融投资学》教学资源（英文文献）Corporate Governance and Control.pdf_P26-P30

MODELS A much larger literature exists on the issue of ex-post efficiency of hostile takeovers.The first formal model of a tender offer game is due to Grossman and Hart(1980).They consider the following basic game.A raider can raise the value per share from v=0 under current management to v=1.He needs 50%of the voting shares and makes a conditional tender offer of p per share.Share ownership is completely dispersed;indeed to simplify the analysis they consider an idealised situation with an infinite number of shareholders.It is not difficult to see that a dominant strategy for each shareholder is to tender if p 1 and to hold on to their shares if p 1.Therefore the lowest price at which the raider is able to take over the firm is p =1,the post-takeover value per share. In other words,the raider has to give up all the value he can generate to existing shareholders.If he incurs costs in making the offer or in undertaking the management changes that produce the higher value per share he may well be discouraged from attempting a takeover.In other words,there may be too few takeover attempts ex-post. Grossman and Hart (1980)suggest several ways of improving the efficiency of the hostile takeover mechanism.All involve some dilution of minority shareholder rights. Consistent with their proposals for example is the idea that raiders be allowed to "squeeze (freeze)out"minority shareholders that have not tendered their shares,or to allow raiders to build up a larger "toehold"before they are required to disclose their stake.3 37A conditional offer is one that binds only if the raider gains control by having more than a specified percentage of the shares tendered. 38 A squeeze or freeze out forces minority shareholders to sell their shares to the raider at (or below)the tender offer price.When the raider has this right it is no longer a dominant strategy to hold on to one's shares when p<1. 3 A toehold is the stake owned by the raider before he makes a tender offer.In the U.S.a shareholder owning more than 5%of outstanding shares must disclose his stake to the SEC.The raider can always make a profit on his toehold by taking over the firm.Thus the larger his toehold the more likely he is to make a takeover attempt (see Shleifer and Vishny 1986 and Kyle and Vila,1991). 26/168

MODELS A much larger literature exists on the issue of ex-post efficiency of hostile takeovers. The first formal model of a tender offer game is due to Grossman and Hart (1980). They consider the following basic game. A raider can raise the value per share from v = 0 under current management to v = 1. He needs 50% of the voting shares and makes a conditional tender offer of p per share.37 Share ownership is completely dispersed; indeed to simplify the analysis they consider an idealised situation with an infinite number of shareholders. It is not difficult to see that a dominant strategy for each shareholder is to tender if p ≥ 1 and to hold on to their shares if p < 1. Therefore the lowest price at which the raider is able to take over the firm is p = 1, the post-takeover value per share. In other words, the raider has to give up all the value he can generate to existing shareholders. If he incurs costs in making the offer or in undertaking the management changes that produce the higher value per share he may well be discouraged from attempting a takeover. In other words, there may be too few takeover attempts ex-post. Grossman and Hart (1980) suggest several ways of improving the efficiency of the hostile takeover mechanism. All involve some dilution of minority shareholder rights. Consistent with their proposals for example is the idea that raiders be allowed to “squeeze (freeze) out” minority shareholders that have not tendered their shares38, or to allow raiders to build up a larger “toehold” before they are required to disclose their stake.39 37 A conditional offer is one that binds only if the raider gains control by having more than a specified percentage of the shares tendered. 38 A squeeze or freeze out forces minority shareholders to sell their shares to the raider at (or below) the tender offer price. When the raider has this right it is no longer a dominant strategy to hold on to one’s shares when p < 1. 39 A toehold is the stake owned by the raider before he makes a tender offer. In the U.S.a shareholder owning more than 5% of outstanding shares must disclose his stake to the SEC. The raider can always make a profit on his toehold by taking over the firm. Thus the larger his toehold the more likely he is to make a takeover attempt (see Shleifer and Vishny 1986 and Kyle and Vila, 1991). 26/168

MODELS Following the publication of the Grossman and Hart article a large literature has developed analysing different variants of the takeover game,with non-atomistic share ownership (eg.Kovenock,1984,Bagnoli and Lipman,1988,and Holmstrom and Nalebuff 1990),with multiple bidders Fishman,1988,Burkart,1995 and Bulow, Huang and Klemperer 1999),with multiple rounds of bidding(Dewatripont,1993),with arbitrageurs (e.g Cornelli and Li,1998),asymmetric information (e.g.Hirshleifer and Titman,1990 and Yilmaz 2000),etc.Much of this literature has found Grossman and Hart's result that most of the gains of a takeover go to target shareholders (because of "free riding"by small shareholders)to be non-robust when there is only one bidder. With either non-atomistic shareholders or asymmetric information their extreme "free- riding"result breaks down.In contrast,empirical studies have found again and again that on average all the gains from hostile takeovers go to target shareholders(see Jensen and Ruback(1983)for a survey of the early literature.While this is consistent with Grossman and Hart's result,other explanations have been suggested,such as (potential) competition by multiple bidders,or raiders'hubris leading to over-eagerness to close the deal (Roll,1986). More generally,the theoretical literature following Grossman and Hart (1980)is concerned more with explaining bidding patterns and equilibrium bids given existing regulations than with determining which regulatory rules are efficient.A survey of most of this literature can be found in Hirshleifer (1995).For an extensive discussion of empirical research on takeovers see also the survey by Burkart(2000). Formal analyses of optimal takeover regulation have focused on four issues:1)whether deviations from a"one-share-one vote"rule result in inefficient takeover outcomes;2) whether raiders should be required to buy out minority shareholders;3)whether takeovers may result in the partial expropriation of other inadequately protected claims 27/168

MODELS Following the publication of the Grossman and Hart article a large literature has developed analysing different variants of the takeover game, with non-atomistic share ownership (e.g. Kovenock, 1984, Bagnoli and Lipman, 1988, and Holmström and Nalebuff 1990), with multiple bidders (e.g. Fishman, 1988, Burkart, 1995 and Bulow, Huang and Klemperer 1999), with multiple rounds of bidding (Dewatripont, 1993), with arbitrageurs (e.g. Cornelli and Li, 1998), asymmetric information (e.g. Hirshleifer and Titman, 1990 and Yilmaz 2000), etc. Much of this literature has found Grossman and Hart’s result that most of the gains of a takeover go to target shareholders (because of “free riding” by small shareholders) to be non-robust when there is only one bidder. With either non-atomistic shareholders or asymmetric information their extreme “freeriding” result breaks down. In contrast, empirical studies have found again and again that on average all the gains from hostile takeovers go to target shareholders (see Jensen and Ruback (1983) for a survey of the early literature. While this is consistent with Grossman and Hart’s result, other explanations have been suggested, such as (potential) competition by multiple bidders, or raiders’ hubris leading to over-eagerness to close the deal (Roll, 1986). More generally, the theoretical literature following Grossman and Hart (1980) is concerned more with explaining bidding patterns and equilibrium bids given existing regulations than with determining which regulatory rules are efficient. A survey of most of this literature can be found in Hirshleifer (1995). For an extensive discussion of empirical research on takeovers see also the survey by Burkart (2000). Formal analyses of optimal takeover regulation have focused on four issues: 1) whether deviations from a “one-share-one vote” rule result in inefficient takeover outcomes; 2) whether raiders should be required to buy out minority shareholders; 3) whether takeovers may result in the partial expropriation of other inadequately protected claims 27/168

MODELS on the corporation, and if so, whether some anti-takeover amendments may be justified as basic protections against expropriation; and 4) whether proxy contests should be favored over tender offers. From 1926 to 1986 one of the requirements for a new listing on the New York Stock Exchange was that companies issue a single class of voting stock (Seligman 1986).40 That is, companies could only issue shares with the same number (effectively one) of votes each. Does this regulation induce efficient corporate control contests? The analysis of Grossman and Hart (1988) and Harris and Raviv (1988a, 1988b) suggests that the answer is a qualified “yes”. They point out that under a “one-share-one-vote” rule inefficient raiders must pay the highest possible price to acquire control. In other words, they face the greatest deterrent to taking over a firm under this rule. In addition, they point out that a simple majority rule is most likely to achieve efficiency by treating incumbent management and the raider symmetrically. Deviations from “one-share-one-vote” may, however, allow initial shareholders to extract a greater share of the efficiency gain of the raider in a value-increasing takeover. Indeed, Harris and Raviv (1988a), Zingales (1995) and Gromb (1996) show that maximum extraction of the raider’s efficiency rent can be obtained by issuing two extreme classes of shares, votes-only shares and non-voting shares. Under such a share ownership structure the raider only purchases votes-only shares. He can easily gain control, but all the benefits he brings go to the non-voting shareholders. Under their share allocation scheme all non-voting shareholders have no choice but to “free-ride’’ and thus appropriate most of the gains from the takeover. 40 A well-known exception to this listing rule was the Ford Motor Company, listed with a dual class stock capitalisation in 1956, allowing the Ford family to exert 40% of the voting rights with 5.1% of the capital (Seligman 1986). 28/168

MODELS specific human capital.They argue that some anti-takeover protections may be justified at least for firms where specific(human and physical)capital is important.A small formal literature has developed around this theme (see e.g.Knoeber 1986,Schnitzer 1995,and Chemla 1998).One lesson emerging from this research is that efficiency depends critically on which type of anti-takeover protection is put in place.For example, Schnitzer (1995)shows that only a specific combination of a poison pill with a golden parachute would provide adequate protection for the manager's (or employees)specific investments.The main difficulty from a regulatory perspective,however,is that protection of specific human capital is just too easy an excuse to justify managerial entrenchment.Little or no work to date has been devoted to the question of identifying which actions or investments constitute "entrenchment behaviour"and which do not.It is therefore impossible to say conclusively whether current regulations permitting anti- takeover amendments,which both facilitate managerial entrenchment and provide protections supporting informal agreements,are beneficial overall. Another justification for poison pills that has recently been proposed by Bebchuk and Hart(2001)is that poison pills make it impossible to remove an incumbent manager through a hostile takeover unless the tender offer is accompanied by a proxy fight over the redemption of the poison pill.In other words,Bebchuk and Hart argue that the 4 Bebchuk and Hart's conclusions rest critically on their view for why straight proxy fights are likely to be ineffective in practice in removing incumbent management.Alternative reasons have been given for why proxy fights have so often failed,which would lead to different conclusions.For example,it has often been argued that management has an unfair advantage in campaigning for shareholder votes as they have access to shareholder lists as well as the company coffers(for example,Hewlett-Packard spent over $100 mn to convince shareholders to approve its merger with Compaq).In addition they can pressure institutional investors to vote for them (in the case of Hewlett-Packard,it was alleged that the prospect of future corporate finance business was implicitly used to entice Deutsche Bank to vote For the merger).If it is the case that institutional and other affiliated shareholders are likely to vote for the incumbent for these reasons then it is imperative to ban poison pills to make way for a possible hostile takeover as Shleifer and Vishny (1986),Harris and Raviv (1988),Gilson (2000)and Gilson and Schwartz (2001)have argued among others.Lipton and Rowe (2001)take yet another perspective.They question the premise in most formal analyses of takeovers that financial markets are efficient.They point to the recent bubble and crash on NASDAQ and other financial markets as evidence that stock valuations are as likely to reflect fundamental value as not.They argue that when stock valuations deviate in this way from fundamental value they can 30/168

MODELS specific human capital. They argue that some anti-takeover protections may be justified at least for firms where specific (human and physical) capital is important. A small formal literature has developed around this theme (see e.g. Knoeber 1986, Schnitzer 1995, and Chemla 1998). One lesson emerging from this research is that efficiency depends critically on which type of anti-takeover protection is put in place. For example, Schnitzer (1995) shows that only a specific combination of a poison pill with a golden parachute would provide adequate protection for the manager’s (or employees’) specific investments. The main difficulty from a regulatory perspective, however, is that protection of specific human capital is just too easy an excuse to justify managerial entrenchment. Little or no work to date has been devoted to the question of identifying which actions or investments constitute “entrenchment behaviour” and which do not. It is therefore impossible to say conclusively whether current regulations permitting antitakeover amendments, which both facilitate managerial entrenchment and provide protections supporting informal agreements, are beneficial overall. Another justification for poison pills that has recently been proposed by Bebchuk and Hart (2001) is that poison pills make it impossible to remove an incumbent manager through a hostile takeover unless the tender offer is accompanied by a proxy fight over the redemption of the poison pill.41 In other words, Bebchuk and Hart argue that the 41 Bebchuk and Hart’s conclusions rest critically on their view for why straight proxy fights are likely to be ineffective in practice in removing incumbent management. Alternative reasons have been given for why proxy fights have so often failed, which would lead to different conclusions. For example, it has often been argued that management has an unfair advantage in campaigning for shareholder votes as they have access to shareholder lists as well as the company coffers (for example, Hewlett-Packard spent over $100 mn to convince shareholders to approve its merger with Compaq). In addition they can pressure institutional investors to vote for them (in the case of Hewlett-Packard, it was alleged that the prospect of future corporate finance business was implicitly used to entice Deutsche Bank to vote For the merger) . If it is the case that institutional and other affiliated shareholders are likely to vote for the incumbent for these reasons then it is imperative to ban poison pills to make way for a possible hostile takeover as Shleifer and Vishny (1986), Harris and Raviv (1988), Gilson (2000) and Gilson and Schwartz (2001) have argued among others. Lipton and Rowe (2001) take yet another perspective. They question the premise in most formal analyses of takeovers that financial markets are efficient. They point to the recent bubble and crash on NASDAQ and other financial markets as evidence that stock valuations are as likely to reflect fundamental value as not. They argue that when stock valuations deviate in this way from fundamental value they can 30/168