This paper examines breakup fees and stock lockups as
devices for prospective target firms to encourage bidder
participation in takeover contest. We show that, unless
bidding costs for the first bidder are too high, breakup
fees provide for the socially desirable degree of
competition and ensure the efficient allocation of the
target to the highest valued buyer in a takeover
auction. In contrast, stock lockups permit the target
firm to subsidize entry of a new bidder at the expense
of an incumbent bidder. pdf 2006