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

by

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,

Ralph