A New Strategy Against Hostile Takeovers: A Model of Defense in Participations

Abstract

This article examines the efficacy of a 'defense in participations' policy consisting of competitors acquiring cross-equity participations within the same industry to prevent hostile takeovers. This defense in participations strategy provides disincentive for raiders as partial ownerships increase market power of competitors and then reinforce the 'outsider effect'. Also, we find conditions for a general result, which state that takeovers are less profitable in an industry with participations rather than in an industry without any capital links. We provide information to regulators about the positive social impact of cross participations in the context of mergers and expose an economic dilemma between a 'laissez-faire' and an interventionist approach.

Takeover deterrents and cross partial ownership: The case of golden shares

“…However, in the context of buyouts, the question of capital appears to be crucial. This motivates our study of the use of CPO to deter hostile takeovers (see, e.g., Serbera, ). We highlight the defensive role of cross participations against hostile takeovers useful to protect national interest in strategic sectors.…”

“…This important innovation brings our model closer into line with financial reality and may also have significant regulatory implications. Serbera () discusses three decisions of the European Court of Justice related to the use CPO by governments to block foreign investment in strategic sectors. The ruling of the European Court of Justice against these protective polices based on free market “laissez‐faire” arguments is thus criticised because CPOs may prove socially more beneficial than traditional competition frameworks.…”

Hostile takeovers, culture, and firm performance: a sensemaking and sensegiving perspective

“…A hostile takeover is an aggressive form of acquisition, as it is not mutual and the acquirer tends to push the takeover attempt with a promise of improving shareholder wealth (Tuch and O'Sullivan, 2007). The literature on hostile takeover has observed the phenomenon from financial (Servaes, 1991; Cain et al , 2017), strategic (Serbera, 2017), human resource (Gutknecht and Keys, 1993) and even a psychoanalytic (Schneider and Dunbar, 1992) approach. The psychoanalytic approach is a seminal work that reflects the newspaper and popular media portrayal of a hostile takeover event, as this form of acquisition attracts the greatest media attention.…”

“…Any takeover is motivated by three reasons, namely, synergy, agency and hubris (Bradley et al , 1988). In case of hostile takeovers, the acquirer firm has a synergy motive (Serbera, 2017), where it attempts to buy shares of the target company to take control of its management and receive a share in the profits. The synergy motive might not materialize in all the cases of the hostile takeover, as the results are not always positive for the acquirer and the target in terms of gains (Berkovitch and Narayanan, 1993).…”

Quantifying the sustainability of Bitcoin and Blockchain

“…One possibility is that arrangements such as partial equity ownerships can help facilitate additional investment in Blockchain (see e.g. a related model for partial ownerships in Serbera, 2017). Moreover, there is some potential for Initial Coin Offerings, as opposed to Initial Public Offerings, to generate profits (Tapscott and Tapscott, 2017; Adhami et al , 2018).…”