WHAT KINDS OF TAKEOVER DEFENSES ARE MOST BENEFICIAL TO SHAREHOLDERS DURING AND FOLLOWING THE BIDDING PROCESS?

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Abstract

We investigate whether the strength of target antitakeover defenses impacts the market’s perception of the wealth generated for both targets and bidders shareholders in acquisitions, as well as the long-run post-acquisition returns to bidders. Our results indicate that while returns to bidder shareholders are a decreasing function of takeover defense strength, target shareholders benefit from moderate takeover defense strategies, at least in the short term. However, target shareholders are adversely affected by the highest levels of takeover defenses, both in the short run and in terms of any position they hold in the acquirer after the transaction is completed, which is reflective of value destruction during the bidding process by entrenched managers. Long run returns to successful bidders are highest when a weak defense target is acquired, and a declining function of target takeover defense strength. The lowest long run returns are experienced by bidders that acquire targets with very-strong takeover defenses. These results are confirmed by multivariate analyses. Overall, our results support the Entrenchment and Myopia theories, and partially support the bargaining power hypothesis.

Keywords: Acquisition, Takeover Defense

How to cite this paper: Glegg, C., Gleason, K., Harris, O., Madura, J. (2010). What kinds of takeover defenses are most beneficial to shareholders during and following the bidding process? Corporate Ownership & Control, 7(4-2), 252-265. https://doi.org/10.22495/cocv7i4c2p3