Thursday, May 14, 2015

The Evolution of Takeover Defenses and Managerial Entrenchment

In the wake of the DuPont - Trian outcome (DuPont retaining all 12 board seats), it is interesting to examine the impact of takeover defenses and outcomes in general.  Here is an interesting article examining the subject.  The article, refers to takeover attempts instead of activist proxy fights but is nonetheless interesting.

Have changing takeover defense rules and strategies entrenched
management and damaged shareholders? The case of defeated
takeover bids

Michael Ryngaert , Ralph Scholten 

"Using the Delaware Supreme Court's Time-Warner decision of July 1989 as a focal point,we study
defeated takeover bids before and after July 1989 to assess the direct effects of stronger takeover
impediments on takeover defense tactics used to defeat bids and the resulting shareholder wealth
outcomes and managerial turnover. We find that firms that defeated takeover bids after July 1989
shifted away from the use of active takeover defenses (repurchases, special dividends, greenmail,
and leverage increases). Nevertheless, shareholders of firms that defeat a takeover experienced
slightly better wealth outcomes in the 1990s than in the 1980s.We also find increased managerial
turnover rates after defeating a takeover bid post Time-Warner, suggesting that managers
that defeat hostile takeover bids did not become more entrenched due to greater takeover

impediments relative to prior years."

The complete article can be downloaded here.

All the best,


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