Post‐takeover Restructuring and the Sources of Gains in Foreign Takeovers: Evidence from U.S. Targets*

Abstract

We examine post‐takeover restructuring activity and the sources of gains in large U.S. targets of foreign acquirers. We find that layoffs and sell‐offs are less important in justifying the target premium in foreign takeovers than in domestic takeovers. In contrast, U.S. targets in foreign takeovers subsequently make more post‐takeover investments than those in domestic takeovers. The likelihood of these post‐takeover restructuring activities is significantly influenced by target characteristics. Finally, the U.S. Tax Reform Act of 1986 has had a significant positive effect on target returns. These results suggest that the realization of synergy is the main motive behind foreign takeovers.