Abstract
This paper develops and tests a theory that explains lhe skewed distribution of the takeover gain heavily in favor of the target shareholders by considering the effects of a concentrated target ownership structure; legal restrictions like the equal treatment principle and the compulsory acquisition proviso; as well as he potential presence of arbitrageurs. The cardinal idea is that large incumbent shareholders with the ootion to block a takeover attempt exercise a strategic influence on the lender offer prices. If appropriate institutional restrictions are imposed and if the potential effect of arbitrageurs is taken into account, the theory's predictions of the distribution of the synergy gain between the target firm and the acquirer are not rejected in tests on Swedish data. However, since the theory incorporates institutional characteristics that are pertinent, especially for European takeover markets, we expect it to possess explanoatory power over a wider empirical range.
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