Organizations and Markets

Take (Over) My Firm, Please!

13 May 2008 at 10:13 am Peter Klein Leave a comment

| Peter Klein |

To paraphrase Groucho Marx, would you want to take over a firm that wants you to take it over? Most corporate bidders don’t. From Derek Oler and Kevin Smith:

We investigate 401 firms that publicly advertise a desire to be acquired (“take-me-over” or TMO firms) from 1990 to 2006. Over this period the TMO “wave” lags about one year behind the acquisition wave. Most TMO firms show evidence of high debt levels as well as fundamental underperformance relative to industry peers. Although most TMO firms enjoy positive announcement period returns, they significantly underperform in the year following their TMO announcement, and most do not receive a takeover offer. Greater proportionate ownership of the firm by dedicated institutional investors is associated with greater likelihood of the firm avoiding bankruptcy, but not with greater likelihood of the firm being acquired. These results suggest that the TMO announcement is a significant signal of bad news that is not fully anticipated by the market. However, the TMO announcement does increase the odds of the firm actually receiving a takeover offer.

The paper is titled “The Characteristics and Fate of ‘Take Me Over’ Firms.”

I tell you, I’ve been looking for an opportunity to reference Henny Youngman and Groucho Marx in the same post for years!

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