Who benefits from take over resistance tactics?

1143 words 5 pages
Who benefits from take over resistance tactics?
According to the finance literature, a takeover is a process whereby a firm acquires another firm, resulting in a change of the controlling interest of the acquired firm. Takeovers can occur through acquisitions, proxy contests and going-private transactions. They can be friendly when the management of the target firm is receptive to the bidder offer or they can be hostile when target firm managers resist takeover attempts by using defensive tactics. According to Ross et al (2010), takeovers can result in change of firm policies, layoffs, terminations, or overhaul of business operations.
To analyze who benefits from a takeover resistance tactic, we should first examine the reasons or
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Dann and DeAngelo (1986) cited in Ruback (1987), analyzed 20 transactions where they found that acquisitions and divestitures, reduce by 2% the share price of the target firm.
In general, empirical evidence supports the idea that manager’s defensive tactics are harmful to the target firm value. For example, Bates et al (2012) reported that Microsoft Corporation offered USD 47 billion to Yahoo in 2008, a premium above 60% however; this offer was rejected by Yahoo executives. Following Microsoft´s withdrawal of the acquisition bid, Yahoo´s shares dropped by 15%; the CEO of Yahoo was later replaced for this costly and selfish behavior.
According to Bradley et al (1988) cited in Devos (2009), companies merge to benefit from synergies. For a sample of 236 successful tender offers from 1963-1884, they noted that the equity value for the combined firms increased by 7,4% in average. Synergy is when the combined firm value exceeds the value of the acquirer and acquired firm before the acquisition. Therefore, synergy is attached to the incremental cash flows, coming from revenue enhancement, cost reduction, tax gains and reduced capital requirements.
According to Brealey (2003), acquisitions can happen in three basic forms, merger or consolidation, acquisition of stock and acquisition of assets.
The merger is the incorporation of assets and liabilities of one firm by another and the


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