Friendly Acquisitions Research Articles

Not All Friends Are Alike: A Categorization of Friendly Acquisitions Integrating the Acquired Firm Profile with the Acquirer's Approach

AbstractAlthough previous studies have examined the distinct motivations of acquirers and contrasted the differences between friendly and hostile acquisitions, the combination of the acquirer and target firm perspectives, particularly within friendly acquisitions, has not yet been addressed. By adopting a multidisciplinary approach and integrating the acquiring and acquired firms’ perspectives, this study identifies different types of friendly deals and investigates their impact on post‐acquisition performance. A unique dataset of 668 acquisitions was constructed by merging the Zephyr and Orbis databases. A regression analysis revealed that, in general, rescue and appealing targets obtain better post‐acquisition performance than average targets. The effect of rescue and appealing targets is accentuated by greater accumulated knowledge. Conversely, in partial acquisitions, the effect of rescue and appealing targets is diminished for high‐accumulated knowledge. This signal change of the knowledge‐moderating parameter implies that under general conditions, rescue and appealing targets outperform average targets. However, if the acquirer seeks to follow a collaborative approach to extract the accumulated knowledge of the target firm, then it is better to signal a more cooperative stance through a partial acquisition.

Methods of payment in US banks’ acquisition: efficiency perspectives

ABSTRACTDoes the efficiency classification of acquirers have any effect on the method of payment they select for their acquisition, and does the selected method of payment have any future efficiency consequences? These two questions have never been answered. The objective of this article is to examine the effect of the medium of exchange that US banks use on the consequent cost, revenue, and profit efficiencies of mergers and acquisitions for the period from 1992 to 2003. The results indicate that highly efficient acquirers lose less efficiency when using stocks in financing their acquisitions, while the least efficient acquirers only gain efficiency when mixing stocks with cash in financing their acquisitions. The distributional dynamics in the results of the acquirers’ post-merger profit efficiency show no changes in profit efficiency over time when banks use stock financing but trends towards efficiency loss when using pure cash financing and loses the most when mixing stocks with cash. The contribution of this article is a guideline on the characteristics of efficiency to decision-makers for selecting the medium of exchange in friendly acquisitions given the consequent changes in strategic efficiency after acquisitions.

Влияние враждебных поглощений на стоимость акций приобретающих компаний: российская и европейская практика

Наталия Николаевна Маричева - Научно-Исследовательский институт "Высшая школа экономики". 
 Электронная почта: nnmaricheva@edu.hse.ru
 Елена Моисеевна Рогова - Научно-Исследовательский институт "Высшая школа экономики". 
 Электронная почта: erogova@hse.ru
 В настоящей работе представлены результаты эмпирического тестирования изменения доходности акций российских и европейских компаний на объявления о сделках слияний и поглощений, нацеленного на выявление различий между эффективностью враждебных и дружественных сделок. Авторы пришли к выводу о существовании значимых различий в реакции российских и европейских инвесторов на информацию о сделках, носящих дружественный и враждебный характер. Кроме того, установлено, что информация о враждебных поглощениях негативно воспринимается инвесторами на всех рынках, но на российских инвесторов она влияет сильнее, чем на европейских. Также изучались характеристики сделок и российских приобретающих компаний, во взаимосвязи с их влиянием на динамику курса акций в результате информации о поглощениях.
 Исследование было проведено с помощью методов событийного и регрессионного анализа на выборке из 220 сделок, осуществленных 93 российскими и европейскими публичными компаниями различных отраслей экономики за период 2006–2015 годов.

An Empirical Analysis on Hostile vs. Friendly Acquisition and Effects on Employment

This paper provides empirical evidence on the impact of friendly and hostile acquisitions on the firm employment and labour workforce in the United Kingdom using a specific collected database for the period of 1988-2011 and UK quoted companies. The understanding of this paper is to provide results in terms of recognizing whether hostile acquisitions are harmful to employment and decrease the demand for labour. The results exhibits otherwise, as it does not find any evidence to support the theory that hostile companies are more detrimental to the employment in comparison to friendly acquisitions. However, the paper does find descriptive statistics to what changes during and after the merger events, more specifically, in the labour productivity, real output, employment and wage rate variables. The aforementioned variables do suffer in both types of mergers and acquisitions except for wage rate. Conclusively, hostile and friendly acquisitions do not display any significant relationship with the changes in labour demand and employment, thereby, going against the popular belief that hostile takeovers reduce employment and job loss.

Beyond friendly acquisitions: the case of REITs

Unlike operating companies, acquisitions between Real Estate Investment Trusts (REITs) are friendly and acquirers have been previously found to experience positive announcement effects. This study looks beyond stock response and long term performance and finds that overconfidence motivates REIT managers to acquire other firms or assets within the industry. We find that larger, more profitable, and less transparent REITs with fewer growth opportunities are more likely to become acquirers. We further find that top managers tend to personally buy more shares prior to the acquisition announcement and then sell more shares afterward. Our empirical evidence lends support to the hubris hypothesis.

Integration managers' value‐capturing roles and acquisition performance

AbstractAlthough the significance of managing the acquisition process is acknowledged, little evidence exists as to the ways in which managerial action throughout this process impacts acquisition performance. In this article, the researchers draw attention to the central, yet largely neglected figure responsible for implementing mergers and acquisitions (M&A), namely “the integration manager.” Drawing from an extensive study of nine related, friendly acquisitions involving 166 interviews, the authors find that integration managers affect acquisition performance by capturing value derived from (a) the preacquisition phase, (b) the acquiring firm, and (c) the acquired firm. Through their in/;action, integration managers affect two sources of economic performance: the extent of additional value created and the extent of value leaked. The findings contribute to enriching our knowledge of managing the acquisition process and are a call for more actor‐based, micro‐level studies on the ways in which managing the acquisition process and the actors therein affect acquisition performance. © 2011 Wiley Periodicals, Inc

Organizational commitment during organizational changes

PurposeMergers and acquisitions (M&As) represent major organizational changes, and create traumatic, stressful situations to employees. The purpose of this paper is to study the acquired key employees' organizational commitment towards the acquiring organization during the post‐acquisition integration phase.Design/methodology/approachThis paper is a longitudinal single case study of a European‐acquisition within the high‐tech sector. Data are collected for nearly two years both with four repetitive quantitative surveys and 58 interviews.FindingsThe results imply that the key employees perceive the organizational changes differently. In friendly acquisitions, key employees not only expect organizational changes but also they may have an active role in inducing changes. Moreover, the results imply that key employees' organizational commitment is closely linked to the prior role of the key employees in the acquired company, and how they perceive and experience the post‐acquisition integration phase.Research limitations/implicationsThis research is a single case study, which strives for analytical generalisation rather than statistical generalisation. The results of the case study are limited to the context of European small‐ and medium‐sized enterprises (SMEs) and the Indian IT industry, and not generalisable as such to other companies or industries. However, this research contributes to the growing interest in understanding how change is experienced by individuals, and especially how key persons and managers from the acquired company experience changes following a cross‐border acquisition.Practical implicationsThe findings of this paper provide useful insights to managers involved in M&As on how key persons from acquired SMEs may react to changes following a friendly acquisition.Originality/valueThis paper focuses on the key persons of an acquired high‐tech company and provides unique insights on how key persons may be critical in M&As not only for their tacit knowledge but also from the change leadership point of view. Commitment is crucial from both the retention and change management perspective.

Are Friendly Acquisitions Too Bad for Shareholders and Managers? Long‐Term Value Creation and Top Management Turnover in Hostile and Friendly Acquirers

The well‐documented failure of the majority of acquisitions to create value is often identified in popular discussion with hostile acquisitions, whereas friendly acquirers seem to get a friendly press. The relative performance of friendly and hostile acquirers therefore warrants a rigorous empirical investigation. Clear evidence of superior value creation in hostile over friendly acquisitions allows us to judge the efficacy of the market for corporate control. In this article we examine the long‐term shareholder wealth performance of four types of acquirers – friendly bidder, hostile bidder, white knight and hostile bidder facing a white knight or another hostile bidder. For a sample of 519 acquisitions of UK target firms during 1983–1995, we estimated the three‐year post‐acquisition gains to acquirer shareholders and found that hostile acquirers deliver significantly higher shareholder value than friendly acquirers. We found that friendly acquirers with high stock‐market ratings destroyed more value than hostile acquirers with a similar rating. Friendly acquirer top managers suffered greater job losses than those of hostile acquirers, perhaps paying the price for their inferior value‐creation performance. Our study provides evidence of the superior value‐creation performance of hostile acquirers and makes the case against takeover regulatory rules that may impede hostile takeovers.

Takeover Defenses and Bargaining Power

For decades, academics have claimed that even friendly acquisitions are negotiated in the “shadow” of a hostile takeover bid. But interviews with senior M&A investment bankers provide a different picture of negotiated acquisitions. Determining which version is more representative of most deals is important because the academic assumption has been a main pillar of attempts to justify poison pills and other takeover defenses as ways of increasing the bargaining power of target companies' managements and the premiums received by their shareholders. This article shows that takeover defenses can be justified as a value-maximizing control device in a simplified model with one buyer and one seller. But after taking account of four realities that are present in many if not most corporate M&A deals—alternatives away from the negotiating table (i.e., other potential targets), high costs of launching a hostile bid, information disparities, and managers with divided loyalties—the author demonstrates that only a fraction of friendly acquisitions are in fact negotiated in the shadow of a hostile takeover threat. This conclusion is reinforced by both empirical evidence and the commentary of M&A practitioners presented in the article.

Characteristics of Hostile and Friendly Takeover Targets: Comment

The paper by Morck, Shleifer, and Vishny contributes significantly to our knowledge of the takeover process. The authors conclude that the motive for friendly acquisitions is more likely to be synergistic, whereas in hostile ones it is more likely to be disciplinary. Hostile targets were older, slow growing firms that were investing a smaller fraction of earnings than the average firm in the sample and whose capital was valued by the market at less than half its replacement cost-all of which is consistent with the theory of the agency costs of free cash, which predicts that managers will generally disinvest too slowly. I agree with the authors' conclusions, but there are a number of things the authors did not examine that would have considerably improved our understanding of the issues. The authors did not consider takeover attempts that were unsuccessful, that is, attempts in which the target firm remained independent. Their conclusions apply only to friendly or hostile acquisition targets that were eventually taken over. The authors therefore missed an opportunity to tell us something about firms that were more likely to fail at a friendly deal or more likely to successfully fight off a hostile offer.

The Best of All Possible Worlds (Or Pretty Darn Close)

Marcel Kahan and Edward Rock's Article, How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law,1 captures an intuition that has come to dominate the middle ground between supporters and critics of Delaware's takeover jurisprudence. This is the view that management's discretion to defeat hostile takeovers under Delaware law just does not matter much today. The reason is not that the current law is right -or wrong. Rather it is because offsetting developments within the corporation -option compensation and active boards-have made managers far more receptive to selling their companies today than they were during the turbulent 1980s. Kahan and Rock present a stylized history of the takeover market in three parts. First there was the big bang, an exogenous shock in the early 1980s that sharply increased hostile takeovers. This wave of hostile takeovers lasted only a few years, however. It soon was followed by a second period in which takeover activityand hostile takeovers in particular -fell precipitously. Although the economy was largely responsible for this change, legal and corporate governance developments also contributed to it. During the midand late 1980s, state legislatures adopted antitakeover legislation, while management and its allies experimented with defensive tactics. Management's efforts at self-help culminated in the poison pill, which the Delaware Supreme Court blessed, at least provisionally, in 1986. The pill placed management back in the catbird seat, able to block hostile takeovers without seeking shareholder approval. But the system still was not in equilibrium. There was no turning back the clock; shareholders still wanted the takeover premia that accompanied a robust flow of deals. Equilibrium returned to the system only in the third and final period, beginning around 1992, when option compensation plans and independent boards of directors combined to spark a new wave of friendly acquisitions that profited both shareholders and the managers of target companies.

Determinants of conglomerate and predatory acquisitions: evidence from the 1960s

We estimate continuous-time event-history models of the acquisition of conglomerate vs. non-conglomerate and predatory vs. friendly acquisitions among the 1962 Fortune 500 between January, 1963, and December, 1968. Our analysis of predatory acquisitions reveals that there were strong disciplinary motivations for these acquisitions in the 1960s. Q ratios were, by a large margin, the most important determinant of predatory acquisition likelihood. Surprisingly, however, corporate boards appear to have provided little alternative to predatory acquisition as a monitoring mechanism during this period. Friendly acquisitions, on the other hand, were concentrated among firms with low price-earnings ratios and high return on equity, suggestive of the earnings manipulation story often associated with conglomerate acquisitions. Our analysis of conglomerate acquisitions reveals that there were strong disciplinary motivations for conglomerate acquisitions during this period. Conglomerate targets had low Q ratios and were as likely as non-conglomerate targets to be acquired in a predatory fashion. We find no evidence that conglomerate acquisitions were motivated by a desire to improve earnings-per-share numbers, as some have maintained. In addition, regardless of type or tenor, we find managerial ownership, firm size, and industrial organization motivations for acquisition are consistently important determinants of acquisition likelihood.