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Abstract

In a three-way takeover, a firm bids for a bidder while the bidder's own acquisition deal is ongoing. The bid creates a three-party fight among the target, bidder, and bidder's bidder (b-bidder) which is unobservable in typical takeover contests. Examining a sample of three-way takeovers, we find that more than half of the deals are clustered in financial, utilities, and communication, where fierce competition for market power drives the three-way bids. Targets and bidders gain from the three-party bargaining at the expense of b-bidders who appear to be more concerned about winning the bids irrespective of the costs.