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PARTIAL TAKEOVERS AS PUT OPTIONS
Author(s) -
Hathaway Neville
Publication year - 1990
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.1990.tb00110.x
Subject(s) - stock price , business , stock (firearms) , tender offer , monetary economics , restricted stock , non qualified stock option , economics , financial economics , stock market , microeconomics , finance , shareholder , mechanical engineering , paleontology , corporate governance , horse , series (stratigraphy) , engineering , biology
For stocks of a listed company subject to a takeover offer, a premium must be paid by the bidder to induce acceptance of the offer. For partial takeovers, this premium can be modelled as a put option. While the takeover is current, temporary support for the stock may materialize, possibly resulting in increased prices. The price of options or warrants over the target stock can be used as a means of estimating the ex‐takeover stock price, the takeover premium and any extra support that temporarily may be in the observed market price. This leads to an evaluation of the probable success of the takeover.