A Simple Bargaining Model on Friendly and Hostile Takeovers

We propose a bargaining model that characterizes conditions for an either friendly, hostile or unsuccessful takeover. These conditions are related to private bene…ts of control and selling incentives for the target management, the takeover premium, the toehold size, and the level of breakup fees. Conditions for an e¢ cient takeover are also established. An alternative modeling of hostility and the adoption of a negotiation - rather than an auction setup as most of prior literature - generate new insights on the evolution of corporate governance in the US and deliver testable implications for its market for corporate control consistent with available evidence.