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14 N.Y.U. J.L. & Bus. 187 (2017-2018)
Toehold Collaborations beyond Insider Trading

handle is hein.journals/nyujolbu14 and id is 193 raw text is: NEW YORK UNIVERSITY JOURNAL OF LAW & BUSINESS VOLUME 14 FALL 2017 NUMBER I TOEHOLD COLLABORATIONS BEYOND INSIDER TRADING MIRA GANOR* With the proliferation of the new practice of wolf packing, the incidence of toehold (TH) collaborations as part of a takeover campaign is likely to increase as well. In addition to affecting the size of the TH-potentially transforming the TH into a foothold-TH collaborations may include asymmetric agreements between the collaborators that distort the incentives of the bidders and lead to inefficient results. For example, the asymmetric agree- ment may include contingent distribution rights that make losing the take- over bid to a rival bidder-even to a higher-value use bidder-undesirable. Losing may become so prohibitively expensive that the bidder may continue to bid beyond its reservation-value. As a result, ex ante, asymmetric TH collaborations are likely to deter potential rival bidders, which may motivate the collaborators to enter into such agreements. Bidders may use TH collabo- rations to present a credible threat of winning determination in order to curb competing bids (including efficient bids) which will negatively affect both shareholder value and social wealth. This Article demonstrates and analyzes potential distortions caused by TH collaboration agreements. INTRODUCTION ............................................ 188 I. WOLF PACKING REVIEW............................. 199 II. TH REVIEW ..................................... 201 A. Costs and Benefits............................ 201 B. Numerical Example........................... 208 * Judge Solomon Casseb, Jr. Research Professor in Law, the University of Texas at Austin, Law School. I would like to thank Curtis Anderson, Chris- tine Hurt, Matt Jennejohn, and D. Gordon Smith for very helpful discus- sions, comments, and suggestions. I would also like to thank Jon Bodle for excellent research assistance, and the editors of the New York University Journal of Law and Business for valuable editorial work. Comments are wel- come and can be sent to me at mganor@law.utexas.edu. 187 Imaged with Permission of N.Y.U. Journal of Law & Business