NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Characteristics of Hostile and Friendly Takeover Targets

Randall Morck, Andrei Shleifer, Robert W. Vishny

NBER Working Paper No. 2295 (Also Reprint No. r1102)
Issued in June 1987
NBER Program(s):   ME

Compared to an average Fortune 500 firm, a target of a hostile takeover is smaller, older, has a lower Tobin's Q, invests less of its income, and is growing more slowly. The low Q seems to be an industry-specific rather than a firm-specific effect. In addition, a hostile target is less likely to be run by a member of the founding family, and has lower officer ownership, than the average firm. In contrast, a target of a friendly acquisitions is smaller and younger than an average Fortune 500 firm, and has comparable Tobin's Qs and most other financial characteristics. Friendly targets are more likely to be run by a member of the founding family, and have higher officer ownership, than the average firm. The decision of a CEO with a large stake and/or with a relationship to a founder to retire often precipitates a friendly acquisition. These results suggest that the motive for a takeover often determines its mood. Thus disciplinary takeovers are more often hostile, and synergistic ones are more often friendly.

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Document Object Identifier (DOI): 10.3386/w2295

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