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The Long-Run Performance of Hostile Takeovers: UK Evidence

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  • A Cosh
  • P Guest

Abstract

This paper examines the long-run pre- and post-takeover performance of hostile takeovers in the U.K. from 1985-96. Prior to takeover, targets in hostile takeovers experience a significant deterioration in profit returns, and significantly negative share returns. However, there is little evidence that profit levels are lower than those of non- merging firms. Bidders in hostile takeovers are not superior performers in terms of profit levels, although share returns are significantly high prior to takeover. However, in the post-takeover period hostile takeovers show significant improvements in profit returns, which are associated with significant asset disposals. In contrast, friendly takeovers do not improve profit returns and result in significantly negative long-run share returns. We find no evidence of an inverse relation between the performance improvement in hostile takeovers and the pre-takeover performance of the target. We interpret the results to indicate that although hostile takeovers improve performance, there is little evidence that they play an important role in reversing the nonvalue maximizing behaviour of target companies.

Suggested Citation

  • A Cosh & P Guest, 2001. "The Long-Run Performance of Hostile Takeovers: UK Evidence," Working Papers wp215, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp215
    Note: PRO-1
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Anna Faelten & Miles Gietzmann & Valeriya Vitkova, 2014. "Naked M&A Transactions: How the Lack of Local Expertise in Cross-Border Deals Can Negatively Affect Acquirer Performance – and How Informed Institutional Investors can Mitigate This Effect," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(3-4), pages 469-506, April.
    2. Andy Cosh & Alan Hughes, 2008. "Takeovers after "Takeovers"," Working Papers wp363, Centre for Business Research, University of Cambridge.
    3. Chirinko, Robert S. & Elston, Julie Ann, 2006. "Finance, control and profitability: the influence of German banks," Journal of Economic Behavior & Organization, Elsevier, vol. 59(1), pages 69-88, January.
    4. John Armour & Simon Deakin & Suzanne J. Konzelmann, 2003. "Shareholder Primacy and the Trajectory of UK Corporate Governance," Working Papers wp266, Centre for Business Research, University of Cambridge.
    5. Martynova, Marina & Renneboog, Luc, 2008. "A century of corporate takeovers: What have we learned and where do we stand?," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2148-2177, October.
    6. Simon Deakin, 2005. "The Coming Transformation of Shareholder Value," Corporate Governance: An International Review, Wiley Blackwell, vol. 13(1), pages 11-18, January.
    7. repec:bla:acctfi:v:57:y:2017:i:3:p:855-877 is not listed on IDEAS
    8. John Armour & Simon Deakin & Suzanne J. Konzelmann, 2003. "Shareholder Primacy and the Trajectory of UK Corporate Governance," British Journal of Industrial Relations, London School of Economics, vol. 41(3), pages 531-555, September.
    9. Sourafel Girma & Steve Thompson & Peter W. Wright, 2006. "The Impact of Merger Activity on Executive Pay in the United Kingdom," Economica, London School of Economics and Political Science, vol. 73(290), pages 321-339, May.
    10. Riccardo Calcagno & Sonia Falconieri, 2008. "White Knights and the Corporate Governance of Hostile Takeovers," Tinbergen Institute Discussion Papers 08-118/2, Tinbergen Institute.
    11. Lina M. Cortés & John J. García & David Agudelo, 2015. "Effects of Mergers and Acquisitions on Shareholder Wealth: Event Study for Latin American Airlines," DOCUMENTOS DE TRABAJO CIEF 012453, UNIVERSIDAD EAFIT.
    12. Lina M. Cortés & Diego A. Agudelo & Samuel Mongrut, 2012. "Waves and determinants in the activity of Mergers and Acquisitions: The Case of Latin America," DOCUMENTOS DE TRABAJO CIEF 010658, UNIVERSIDAD EAFIT.
    13. Gunther Tichy, 2001. "What Do We Know about Success and Failure of Mergers?," Journal of Industry, Competition and Trade, Springer, vol. 1(4), pages 347-394, December.
    14. Chris Ratcliffe & Bill Dimovski & Monica Keneley, 2017. "The Performance of REIT Acquirers in the Post-Merger Period," ERES eres2017_43, European Real Estate Society (ERES).

    More about this item

    Keywords

    Hostile takeovers; friendly takeovers; disciplinary hypothesis; pre-takeover performance; post-takeover performance;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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