1] Economic gains from disciplinary acquisitions will be high when
target firms have agency problems, and their managerial performance is expected to decline in the future if they were to operate as independent firms.
For example, the SDC creates an entry in the ODA field when a
target firm publicizes its intention to sell itself or when a
target firm receives an unsolicited offer from a bidder.
Claims often arise from acquired high-risk clients of
target firms where the risk was not properly identified and managed.
Five factors hypothesized to affect
target firm member trust after a takeover were found to be significant influences on employees' trust judgments in a decision-making simulation: (i) combining firms' collaboration history, (ii) mode of takeover, (iii) whether it was a domestic or cross-border acquisition, (iv) degree of autonomy removal, and (v) attractiveness of the acquiring firm's human resource policies and reward system.
Similarly, our results suggest that as acquiring firms get relatively more profitable, the emphasis placed on salary declines and the emphasis placed on bonuses increases relative to
target firms (significant at [alpha] < 0.
Moreover, successful acquirers do not judge
target firms based solely on financial criteria such as return on investment or expected impact on earnings per share.
Table 2 Univariate Analysis of Measures of Incremental Wealth and Acquisition Premiums Mean Values Full Sample Overfunded (N = 150) (N = 73) Premium Accepted by
Target Firm $ Premium 12.
jt~ represents returns earned by the
target firm after adjusting for the "normal" return process.
Cross-holders in such instances enjoyed a modest net gain of 1 percent, but clearly their assets in the
target firm had mitigated against what could have been a significant loss.
A change of control can mitigate the agency problems in the
target firm if the acquiror can implement better business practices and eliminate self dealing and other costly forms of "managerial" behavior.
To avoid this, the acquiring firm may choose to have the
target firm terminate its plan prior to merger or acquisition.
If your company is just as good as a
target firm, why pay up?
