The toehold as a tool for assessing the acquisition synergies – Evidence from Europe

Abstract

The toehold is a non-controlling equity stake purchased by the potential bidder before the final takeover attempt. It provides an opportunity to co-operate with the target and its management to better evaluate the synergies before the possible acquisition. The probability of acquiring the toehold stems from the informational disadvantages. The toehold is the most beneficial when the target is opaque and thus difficult to evaluate. I test this proposition on the European acquisition data using a logistical analysis. I find the equivocal evidence which is discussed in the paper.