A problem with the tender offer mechanism in a takeover is the ______.The term refers to a situation in which rational behavior by each individual shareholder results in shareholders as a group being worse off.If individual target shareholders (correctly) foresee that the value of their shares will be worth more after the takeover than they will receive in the tender offer, they will choose not to tender their shares.

Question

Quizplus · Accepted Answer

The correct term is the "free rider problem," which occurs when shareholders anticipate that a takeover will increase the value of their shares beyond the offer price, leading them to withhold their shares in hopes of benefiting from the takeover without participating in the tender offer. This behavior, if widespread, can make takeovers difficult or less beneficial for the acquiring firm.

A Problem with the Tender Offer Mechanism in a Takeover