TY  - JOUR
AU  - Lambrecht,Bart
AU  - Myers,Stewart C.
TI  - A Theory of Takeovers and Disinvestment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11082
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11082
L1  - http://www.nber.org/papers/w11082.pdf
N1  - Author contact info:
Bart Lambrecht
Lancaster University Management School
Room C-42
Bailrigg
Lancaster  LA1 4YX, UK
Tel: 44 0 1524 592711
Fax: 44 0 1524 847321
E-Mail: b.lambrecht@lancaster.ac.uk

Stewart C. Myers
Massachusetts Institute of Technology
Sloan School of Management
E62-620
77 Massachusetts Avenue
Cambridge, MA 02142
Tel: 617/253-6696
Fax: 617/258-6855
E-Mail: scmyers@mit.edu
AB  - We present a real-options model of takeovers and disinvestment in declining industries. As product demand declines, a first-best closure level is reached, where overall value is maximized by shutting down the .rm and releasing its capital to investors. Absent takeovers, managers of unlevered firms always abandon the firm's business too late.  We model the managers' payout policy absent takeovers and consider the effects of golden parachutes and leverage on managers' shut-down decisions. We analyze the effects of takeovers of under-leveraged firms. Takeovers by raiders enforce first-best closure. Hostile takeovers by other firms occur either at the first-best closure point or too early. We also consider management buyouts and mergers of equals and show that in both cases closure happens inefficiently late.
ER  -