A Theory of Hostile Takeovers

In this paper, a consistent picture of the multifaceted mechanism of a hostile leveraged takeover is provided. The analysis points out two basic issues. The first is the financial problem caused by the leveraged acquisition, which calls for detailed strategic planning in order to ascertain the feasibility of the operation with respect to the capital structure of the target company. The second issue is the agency problem caused by the delegation of the acquisition to a raider who posess the unique skills needed for such a task. A coherent framework has thus been developed, which enables the raider to evaluate different potential targets and the lender to guarantee the optimal behavior of the agent