Toehold strategies, takeover laws and rival bidders

A study on tender offers suggests a complex interaction between toeholds and bids, even though no asymmetric information is present. In a tender offer, toeholds are legal pre-announcement purchases of shares in the open market by the bidding firm. The scenario is presented by a simple model that describes the bidder's optimal toehold acquisition strategy in an environment that is very similar to existing legal institutions. The model implies that no toeholds must be acquired if no competing bidders are anticipated.