Friday, December 18, 2009
Abstract: This paper studies the value gains from corporate takeovers of firms that have a history of undertaking value-destroying acquisitions. We document that the larger the value loss from target’s prior acquisitions, the higher the takeover premium received by target shareholders, but also the higher the value loss to the acquiring shareholders at the announcement of the takeover. We find no evidence of synergy gains from these takeovers. Our findings challenge the notion that the market for corporate control is an effective mechanism for unlocking the value from firms that engaged in value destroying acquisition programs.