Bustup Takeovers of Value-Destroying Diversified Firms

Bustup Takeovers of Value-Destroying Diversified Firms

We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover,...

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Bibliographic Details
Published in:The Journal of finance (New York) 1996-09, Vol.51 (4), p.1175-1200
Main Authors: BERGER, PHILIP G., OFEK, ELI
Format: Article
Language:eng
Subjects:
Base year
Business structures
Capital structure
Diversification
Divestiture
Economic value
Evaluation points
Firm value
Mergers
Portfolio diversification
Product diversification
Productivity
Sales growth
Statistical median
Take-overs
Target acquisitions
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Summary:We examine whether the value loss from diversification affects takeover and breakup probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post-takeover bustup; and (2) post-takeover bustup generally results in divested divisions being operated as part of a focused, stand-alone firm.
ISSN:0022-1082
1540-6261