hostility in takeovers in the eyes of the beholder.pdfVIP

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, hos- tility could reflect 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, except that hostile transactions involve publicity as part of the bargaining process. THE PERCEPTION OF HOSTILITY in American takeovers has had important con- notations in both the popular and the academic literature. Unwelcome bids are often perceived to threaten at least some of the stakeholders in target corporations, leading to extensive defensive reactions by the management of the target firm. In contrast, friendly takeovers are often seen to create synergies that make both the bidder and the target firm better off see, for example, Mørck, Shleifer, and Vishny 1988, 1989. The distinction between hostile and friendly takeovers is also important if removing an inefficient target management team creates the gains from hostile takeovers. Manne 1965 refers to this as part of the market for cor- porate control. Several papers have shown that management turnover in- creases following hostile takeovers, including Shivdasani 1993. Although