This paper examines the market reactions to toehold acquisitions to determine whether and under what circumstances the formation of a new large outside shareholder contributes to the shareholder value of the firm. We argue that although toehold acquisitions signal imminent challenges to the control of the management of the target firms, the challenges do not necessarily contribute to the shareholder value if the management is likely to resist ferociously. We find that while voting premium increases in response to toehold acquisitions for the entire sample, it depends on firm characteristics such as dual class stocks and the asset size whether shareholder value increases. Dual class targets exhibit a positive market reaction only if the controlling shareholders do not have sufficient corporate resources under their control, whereas single class targets show a significantly positive cumulative abnormal return regardless of the asset size. The results are consistent with the hypothesis that dual-class stocks are an outcome of the managerial incentives for entrenchment.