An analysis of foreign takeovers in the United States

Abstract

AbstractUsing a sample of 96 US companies taken over by foreign companies during the period 1975‐87, we assess foreign takeovers in two stages: pre‐takeover and takeover. We find evidence that foreign firms target US firms whose operations are related to their own operations and that have low market‐to‐book ratios, suggesting foreign bidders acquire firms that provide a greater opportunity for market entry and synergistic gains. The synergistic gains appear to result from the foreign buyer using its own intangible assets (e.g. managerial skills) to improve the target. We also find that foreign takeover activity is aimed primarily at US industries that themselves make high levels of foreign direct investments, implying that the bidders use takeovers as a quick way to counteract rival firms' moves. We find evidence that foreign takeovers take place in relatively mature, low‐growth industries and that foreign targets are, on average, smaller than the non‐targets. The wealth effect on the announcement of a takeover is significantly higher for foreign takeovers than for takeovers by domestic firms. Also, we find that foreign bidders pay a slightly higher premium for targets whose operations are related to their own.