Tuesday, August 26, 2014

Weaker takeover defenses lead to more takeovers, but ...


Does this benefit shareholders?  On the one hand, weaker takeover defenses expose the companies to the threat of takeover which should force management to maximize shareholder value.  

However, when the high-value acquirer comes knocking, it doesn't need to pay as much to acquire the company.  Remember that the alternatives to agreement determine the terms of agreement and by weakening takeover defenses, the target firm has a worse outside alternative.  

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