Causes and consequences of foreign takeovers in the United States: A real sector imperfections perspective
Description
The purpose of this dissertation is to examine the causes and consequences of foreign takeovers in the United States. In particular, I try to find whether real sector imperfections motivate foreign takeovers For a sample of 96 foreign takeover targets (taken over during the period 1975-1987), I empirically study the foreign takeovers in three stages: (i) the pre-takeover stage, (ii) the transaction stage, and (iii) the post-takeover stage The real sector imperfections model of foreign takeovers predicts that the motives of foreign takeovers in the United States are (a) to enter or expand the United States' market, and (b) to obtain synergistic gains by acquiring an appropriate target The empirical findings confirms the contention that foreign bidders are motivated by real sector imperfections in the United States. In particular, the findings in the pre-takeover stage show that foreign bidders acquire firms in markets characterized by high degree of marketing skills, as measured by the advertisement expenditure. Also, more takeover activity is targeted in industries which themselves make high level of foreign direct investment implying that the bidders use takeovers as a vehicle of quick entry to counteract rival firms' moves. The surprising result is that takeovers do not take place in high technology (as measured by R & D expenditures) industries. Another result pertaining to the target firms' industries shows that these takeovers take place in more mature, low growth industries. All these results, however, lose their significance when compensation for choice based sampling is made. The foreign targets, on an average, are smaller than the non-targets. The foreign bidders takeover firms with very low levels of intangible assets, as measured by the market-to-book value The findings of takeover-stage show that the wealth effect on the announcement of a takeover is significantly higher for foreign targets than for domestic targets. Also, foreign bidders pay a significantly higher premium for targets whose operations are related to their own. The results weakly indicate that the foreign bidders pay a relatively higher premium for firms with lower levels of intangible assets, showing their preference for such firms Finally, the findings of the post-takeover stage show that the foreign bidders use the targets as a base for expansion through new investments in forty cases. The bidders also divest a substantial portion of assets in thirty-one cases. Most of these divestitures are probably taken to correct past managerial mistakes. In twenty-two cases the targets report changes in top management positions. Finally, although, fifteen firms report post-takeover layoffs and investment cuts, the magnitude of such changes is very small The direct evidence on foreign takeover activity shows that foreign takeovers are good for United States and that there is no reason to restrict them