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Article
Using Auction Theory to Inform Takeover Regulation
Journal of Law, Economics, and Organization (1991)
  • Peter Cramton, Yale University
  • Alan Schwartz, Yale University
Abstract

This paper focuses on certain mechanisms that govern the sale of corporate assets. Under Delaware law, when a potential acquirer makes a serious bid for a target, the target’s Board of Directors is required to act as would "auctioneers charged with getting the best price for the stock-holders at a sale of the company.’’ The Delaware courts’ preference for auctions follows from two premises. First, a firm’s managers should maximize the value of their shareholders’ investment in the company. Second, auctions maximize shareholder returns. The two premises together imply that a target’s board should conduct an auction when at least two firms would bid sums that are nontrivially above the target’s prebid market price.

Publication Date
1991
Citation Information
Peter Cramton and Alan Schwartz. "Using Auction Theory to Inform Takeover Regulation" Journal of Law, Economics, and Organization Vol. 7 (1991)
Available at: http://works.bepress.com/cramton/78/