Hostile Takeover Essay

20544 Words Feb 22nd, 2013 83 Pages
THE JOURNAL OF FINANCE • VOL. LV, NO. 6 • DEC. 2000

Hostility in Takeovers: In the Eyes of the Beholder?
G. WILLIAM SCHWERT* ABSTRACT
This paper examines whether hostile takeovers can be distinguished from friendly takeovers, empirically, based on accounting and stock performance data. Much has been made of this distinction in both the popular and the academic literature, where gains from hostile takeovers result from replacing incumbent managers and gains from friendly takeovers result from strategic synergies. Alternatively, hostility could ref lect strategic choices made by the bidder or the target. Empirical tests show that most deals described as hostile in the press are not distinguishable from friendly deals in economic terms,
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Simon Graduate School of Business Administration, University of Rochester and Research Associate, National Bureau of Economic Research. I am indebted to Bob Comment for many discussions on this topic and for the use of his database. Comments from seminar participants at Columbia, Emory, Harvard, NYU, Yale, and the NBER Corporate Finance Conference are gratefully acknowledged. I also benefited from the suggestions of David Blackwell, Jarrad Harford, Paul Healy, Randall Mørck, René Stulz, Jerold Zimmerman, and an anonymous referee. The views expressed here are those of the author and do not necessarily ref lect the views of the National Bureau of Economic Research. The Bradley Policy Research Center at the Simon School provided support for this research.

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to be some economic gains from combining the operations of the bidder and target. Stulz ~1988! discusses the relation between strategic and entrenchment motives for resistance by target management in response to a takeover offer. Some laws and contracts depend on the distinction between hostile and friendly takeover attempts. For example, the Wall Street Journal ~16 May 1996! reports that Aon Corp. began selling “Hostile Takeover Defense Insurance,” designed to reimburse companies for the costs associated with warding off a hostile takeover bid or a proxy fight with dissident shareholders. Likewise, Mitchell and Netter ~1989! argue that a proposed tax bill that would have

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