BhagatShleiferVishny 1990 Sample All hostile takeovers in the

Bhagat-Shleifer-Vishny (1990) Sample: All hostile takeovers in the U. S. during 19841986 with a purchase price greater than $50 million. Outcome Table 1 p. 13 1984 -1986 Sold to bidder 47% White knight 33% Remained indep. 20% Wall Street Journal June 30, 1997 1994 -May 1997 38% 25% 35% Bhagat/Dong/Hirshleifer/Noah (2005): Table 1, Figure 2: Hostile takeovers were common even in the 1990 s and early 2000 s.

Bhagat-Shleifer-Vishny (1990) Layoffs and Takeover Premium Blue-collar layoffs: Closing of plant, consolidation of production. White-collar layoffs: Headquarter and staff consolidations. To compute the value of labor cost savings from layoffs: (p. 20) Pre-tax labor cost is $40 K/$100 K for blue/white collar workers. Present value of labor cost savings: Assume discount rate of 10%. Savings for 5 years/ in perpetuity. Table 5: When blue-collar layoffs occur: 1493 workers (6. 5% of total work force). Savings: 11. 1% to 29. 2%. Table 4: When white-collar layoffs occur: 660 workers (57. 5% of white-collar work force). Savings: 33. 6% to 88. 3%.

Bhagat-Shleifer-Vishny (1990) Hostile acquirors / White knights / Remain independent (p. 32) 30 hostile acquirors: 10 headquarters sales/closing. 20 white knights: 0 headquarters sales/closings! Premium explained by savings from layoffs: Hostile acquirors: 11%. White knight: 5. 5%. Independent: 18. 6%.

Bhagat-Shleifer-Vishny (1990) Increase in Corporate Specialization/Focus after a Hostile Takeover Incident: Page 34: The Importance of Selloffs after. Takeovers Selloffs observed in 42 of the 62 hostile takeover incidents; accounting for 30 percent of the acquisition price.

Bhagat-Shleifer-Vishny (1990) Different Types of Selloffs: – Classic Bustups » Revlon’s acquisition of Frigitronics » First City’s acquisition of Scovill – Retaining some pieces of conglomerates » Quaker Oats buys Anderson Clayton; sells everything except Gaines » Minstar buys AMF and Aegis; sells everything except boat divisions

Bhagat-Shleifer-Vishny (1990) Different Types of Selloffs (continued): – Low-selloff takeovers (usually in same industry) » Pipelines: Coastal acquires American Natural resources » Textile: Walton Monroe Mills acquires Avondale Mills » Publishing: G&W acquires Prentice Hall

Bhagat-Shleifer-Vishny (1990) Mean Acquisition Price Realized through Selloffs – LBOs vs. non-LBOs: 44% vs. 28% – Successful vs. Unsuccessful Takeovers: NO difference » Suggests, as do the layoff results: Firms escaping hostile takeover do most of the things the acquirer would have done anyway.