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The Role of Debt Purchases in Takeovers: A Tale of Two Retailers

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  • Thomas H. Noe
  • Michael J. Rebello

Abstract

In this paper, we examine acquisitions of two financially distressed retailers—Federated's takeover of Macy's, and Zell Chilmark's takeover of Carter Hawley Hale. In both cases the raider purchased some of the target's outstanding debt to launch its takeover attempt. These debt purchases appear to have been facilitated by two salient factors—the raider's expertise in dealing with distressed firm restructuring and the ability of the raider to acquire a large blockholding of debt. Our analysis indicates that, when these factors are present, it is optimal for a raider to initiate a takeover of a distressed firm through purchasing a block of the firm's debt. Target bondholder reaction will be favorable whereas shareholder reaction may be either favorable or unfavorable.

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  • Thomas H. Noe & Michael J. Rebello, 2006. "The Role of Debt Purchases in Takeovers: A Tale of Two Retailers," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(3), pages 609-648, September.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:3:p:609-648
    DOI: 10.1111/j.1530-9134.2006.00112.x
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