M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, December 18, 2009

Bad Bidders Make Bad Targets

'Tis the season for papers on value destroying merger transactions!  Offenberg, Srtaska and Waller have a paper, Who Gains from Buying Bad Bidders?, that examines whether there are gains to be had from acquiring companies who have been bad acquirers themselves.  I guess the thought there is that two wrongs might make a right.  I don't know.  Who gains from buyer bad bidders?  Apparently not the buyer. Lesson here:  when a company has been laid low by its poor acquisition decisions, give it a wide berth as you pass up on the chance to pick up the pieces.

Abstract: This paper studies the value gains from corporate takeovers of firms that have a history of undertaking value-destroying acquisitions. We document that the larger the value loss from target’s prior acquisitions, the higher the takeover premium received by target shareholders, but also the higher the value loss to the acquiring shareholders at the announcement of the takeover. We find no evidence of synergy gains from these takeovers. Our findings challenge the notion that the market for corporate control is an effective mechanism for unlocking the value from firms that engaged in value destroying acquisition programs.



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