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Bhagat-Shleifer-Vishny (1990)

Bhagat-Shleifer-Vishny (1990). Sample : All hostile takeovers in the U.S. during 1984-1986 with a purchase price greater than $50 million. Outcome Table 1 Wall Street Journal p.13 June 30, 1997 1984-1986 1994-May 1997 Sold to bidder 47% 38% White knight 33% 25%

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Bhagat-Shleifer-Vishny (1990)

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  1. Bhagat-Shleifer-Vishny (1990) Sample: All hostile takeovers in the U.S. during 1984-1986 with a purchase price greater than $50 million. OutcomeTable 1 Wall Street Journal p.13 June 30, 1997 1984-19861994-May 1997 Sold to bidder 47% 38% White knight 33% 25% Remained indep. 20% 35% Bhagat/Dong/Hirshleifer/Noah (2005): Table 1, Figure 2: Hostile takeovers were common even in the 1990s and early 2000s.

  2. Bhagat-Shleifer-Vishny (1990) Layoffs and Takeover Premium Blue-collar layoffs: Closing of plant, consolidation of production. White-collar layoffs: Headquarter and staff consolidations. To compute the value of labor cost savings from layoffs: (p.20) Pre-tax labor cost is $40K/$100K for blue/white collar workers. Present value of labor cost savings: Assume discount rate of 10%. Savings for 5 years/ in perpetuity. Table 5: When blue-collar layoffs occur: 1493 workers (6.5% of total work force). Savings: 11.1% to 29.2%. Table 4: When white-collar layoffs occur: 660 workers (57.5% of white-collar work force). Savings: 33.6% to 88.3%.

  3. Bhagat-Shleifer-Vishny (1990) Hostile acquirors / White knights / Remain independent (p.32) 30 hostile acquirors: 10 headquarters sales/closing. 20 white knights: 0 headquarters sales/closings! Premium explained by savings from layoffs: Hostile acquirors: 11%. White knight: 5.5%. Independent: 18.6%.

  4. Bhagat-Shleifer-Vishny (1990) Increase in Corporate Specialization/Focus after a Hostile Takeover Incident: Page 34: The Importance of Selloffs afterTakeovers Selloffs observed in 42 of the 62 hostile takeover incidents; accounting for 30 percent of the acquisition price.

  5. Bhagat-Shleifer-Vishny (1990) • Different Types of Selloffs: • Classic Bustups • Revlon’s acquisition of Frigitronics • First City’s acquisition of Scovill • Retaining some pieces of conglomerates • Quaker Oats buys Anderson Clayton; sells everything except Gaines • Minstar buys AMF and Aegis; sells everything except boat divisions

  6. Bhagat-Shleifer-Vishny (1990) • Different Types of Selloffs (continued): • Low-selloff takeovers (usually in same industry) • Pipelines: Coastal acquires American Natural resources • Textile: Walton Monroe Mills acquires Avondale Mills • Publishing: G&W acquires Prentice Hall

  7. Bhagat-Shleifer-Vishny (1990) Mean Acquisition Price Realized through Selloffs • LBOs vs. non-LBOs: 44% vs. 28% • Successful vs. Unsuccessful Takeovers: NO difference • Suggests, as do the layoff results: Firms escaping hostile takeover do most of the things the acquirer would have done anyway.

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