Toehold Acquisitions, Shareholder Wealth, and the Market for Corporate Control

Abstract

This study examines the valuation consequences of control-related outcomes that follow toehold acquisitions. We find evidence that toehold acquisitions facilitate value enhancing control transfers. The types of control transfers not only include takeovers, but also internal mechanisms, such as proxy fights and management turnovers. We find that toehold targets experiencing such control transfers exhibit an abnormal increase in share value, while those not experiencing such control transfers exhibit an abnormal decrease in share value. The results suggest that the positive valuation effect associated with toehold acquisitions reflects the expected benefits of subsequent control transfers.