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Do Bad Bidders Become Good Targets?

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  • Mark L. Mitchell
  • Kenneth Lehn

Abstract

This paper empirically examines one motive for takeovers: to change control of firms that make acquisitions that diminish the value of their equity. Firms that subsequently become takeover targets make acquisitions that significantly reduce their equity value, and firms that do not become takeover targets make acquisitions that raise their equity value. Within the sample of acquisitions by targets, the acquisitions that reduce equity value the most are those that are later divested either in bust-up takeovers or restructuring programs to thwart the takeover. This evidence is consistent with theories advanced by Robin Marris (1963), Henry G. Manne (1965), and Michael C. Jensen (1986) concerning the disciplinary role played by takeovers. Copyright 1990 by University of Chicago Press.
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  • Mark L. Mitchell & Kenneth Lehn, 1990. "Do Bad Bidders Become Good Targets?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 3(2), pages 60-69, June.
    • Handle: RePEc:bla:jacrfn:v:3:y:1990:i:2:p:60-69
    DOI: 10.1111/j.1745-6622.1990.tb00200.x
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