n African Finance Journal - Toehold

Volume 6, Issue 1
  • ISSN : 1605-9786



We examine risk-adjusted returns in association with (i) bids coinciding with toehold acquisitions and (ii) bids that are deferred past the toehold acquisition date. When a bidder is uncertain about the merged value of the target company, buying a toehold and deferring a bid can be more beneficial than immediately proceeding to full control. For target firms, abnormal returns around toehold acquisitions are found to anticipate deferred bids, irrespective of the status of rival bidders. Bidders experience zero abnormal returns around toehold announcements irrespective of the status of rivals, as expected. A new finding is that bidder returns average negative (-5.3%) around bid announcements, and are traced to a sub-sample of bidders who deferred their bids and bid at a price below that paid for their toehold. The negative return is interpreted as market correction of the value attributed to earlier toehold acquisitions when there was less information about the merged value of target companies.

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