change the financing mix of an underlevered
company than it is to modernize the plant and
equipmentofamanufacturingcompanythathasold
andoutdated plants.Wewouldexpect thevalue of
control to be higher in the former because the
changescanbe made quicklyand thesavings will
show up sooner.Empirical Evidence
Evidence supportive of the hypothesis that hostile
acquisitions are primarily motivated by control can be
categorized into three groups. The first type of evidence
relates to the premiums paid for target firms in hostile
acquisitionssincetheyreflecttheacquirer’sexpectationsof
thevalueofcontrol.Thesecondiscenteredonthetypesof
firmsthat aretypicaltarget firmsin hostileacquisitions:If
controlisthemotive,thetypicaltargetfirmshouldbepoorly
managed and poorly run.Thethird looksatwhat happens
after hostile acquisitions: control-motivated acquisitions
should be followed by management turnover, changed
financing and investment policies, and improved
performance.
Premiums Paid for Target Firms in Acquisitions
Researchers have used the premium paid by acquirers in
mergers as a measure of control, but this premium is an
amalgamofallofthemotivesbehindacquisitions,including
synergy.Thepremiumpaidinanacquisitionisacomposite
value of control, synergy, and overpayment. Given this
reality, how can we narrow our analysis down to only
control? To begin with, we can focus on just hostile