Takeover Bidding and Shareholder Information

We study the role of shareholder information during the acquisition of widely held firms. When target shareholders share the same information about the post-takeover value, increasing the precision of information has no effect on the expected acquisition price. However, more precise information aggravates the free-rider problem, allowing shareholders to better discern when it is worthwhile to hold out rather than tender their shares. By contrast, when information is dispersed among shareholders, providing shareholders with superior information induces the raider to offer higher prices, thus increasing shareholder value. However, in this case, neither prices nor tendering decisions aggregate any information.