By Alan J. Auerbach
The takeover growth that all started within the mid-1980s has exhibited many phenomena now not formerly saw, equivalent to adverse takeovers and takeover defenses, a frequent use of money as a method of check for precise corporations, and the acquisitions of businesses score one of the greatest within the state. With the purpose of extra absolutely knowing the consequences of such occurances, participants to this quantity examine a wide diversity of concerns as they study mergers and acquisitions and research the takeoveer procedure itself.
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Extra info for Corporate Takeovers: Causes and Consequences (National Bureau of Economic Research Project Report)
Example text
When a hostile acquisitor cuts off these investments, the shareholders gain. To a large extent, however, the gains come at the expense of the employees' employment and wage losses. 42 Andrei Shleifer and Lawrence H. Summers For breach to be an important source of gains, hostile takeovers must come as a surprise to stakeholders, who entered into implicit contracts expecting the firm to be run by trustworthy managers. For if the stakeholders anticipate a hostile takeover, they will realize the trustworthiness of the incumbent managers is worthless, since they will be duly removed when shareholder interest so demands.
Note that the Icahn takeover has two implications. First, shareholders regain the extra $5 they were overpaying flight attendants under the old regime, which is just a transfer. Second, however, because of asymmetric information in the ex post contracting environment, the takeover entailed a misallocation of resources as the TWA-specific capital of flight attendants went to waste. The second problem is not unique to takeovers; it occurs in many environments with asymmetric information. But takeovers can exacerbate this inefficiency by moving negotiations into the environment of less trust and greater informational asymmetries.
In Scenario B society is about equally well off. The gains to Direction shareholders are approximately offset by the losses to the human wealth of Direction employees. The redistribution is probably antiegalitarian. On the other hand, it may ultimately lead to advantages for customers of the airline. In Scenario C society is worse off. The gains to USZ shareholders are offset by the losses incurred by the laid-off employees and by the firms with immobile capital whose viability depended on the factories' remaining open.