Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

(Hop HipldF0AV) #1

  • Manyofthehostiletakeoverswere followedbyan
    increaseindebt,whichresultedinadowngradingof
    thedebt.Thedebtwasquicklyreducedwithproceeds
    from the sale of assets, however.

  • There wasno significantchange in the amount of
    capital investment in these firms.

  • Almost 60 percentofthetakeoverswerefollowedby
    significantdivestitures,inwhichhalformoreofthe
    firmwasdivested.Theoverwhelmingmajorityofthe
    divestitureswereunitsinbusinessareasunrelatedto
    the company’score business (i.e.,they constituted
    reversal ofcorporate diversification done in earlier
    time periods).

  • Thereweresignificantmanagementchangesin 17 of
    the 19 hostiletakeovers,withthereplacementofthe
    entire corporate management team in seven of the
    takeovers.


Another study of acquisitions of 288 distressed firms by
so-called vulture investors provides evidence of improved
operating performance after the acquisitions.
41 Thus, contrary to popular view,
42 most hostiletakeoversarenot followedbytheacquirer
strippingtheassetsofthetargetfirmandleadingittoruin.
Instead, target firms refocus on their core businesses and
often improve their operating performance.


Valuing Publicly Traded Companies


Thereisawidelyheldmisconceptionthatcontrolisanissue
only whenyoudoacquisitions. Tothecontrary,we would
argue that the stock price of every publicly traded firm
includes an expectedvalue for control, reflecting both the

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