How Has Takeover Competition Changed Over Time?
| Author | J. Harold Mulherin,Tingting Liu |
| DOI | http://doi.org/10.1111/jacf.12331 |
| Date | 01 March 2019 |
| Published date | 01 March 2019 |
IN THIS ISSUE:
Agency
Capitalism
8The Rise of Agency Capitalism and the Role of Shareholder
Activists in Making It Work
Ronald J. Gilson, Columbia and Stanford Law Schools, and
Jeffrey N. Gordon, Columbia Law School
23 e Eect of Shareholder Approval of Equity Issuances
Around the World
Clifford G. Holderness, Boston College
42 Does Mandatory Shareholder Voting Prevent Bad Acquisitions?
e Case of the United Kingdom
Marco Becht, Université libre de Bruxelles, CEPR, and ECGI; Andrea Polo, Luiss University,
Universitat Pompeu Fabra, EIEF, Barcelona GSE, CEPR and ECGI; and Stefano Rossi, Bocconi
University, CEPR, and ECGI
62 e Early Returns to International Hedge Fund Activism: 2000-2010
Marco Becht, Université libre de Bruxelles, CEPR, and ECG; Julian Franks, London Business
School, CEPR, and ECGI; Jeremy Grant, Berenberg Bank; and Hannes Wagner, Bocconi University,
ECGI, and IGIER
81 How Has Takeover Competition Changed Over Time?
Tingting Liu, Iowa State University, and Harold Mulherin, University of Georgia
95 Do Large Blockholders Reduce Risk?
David Newton and Imants Paeglis, Concordia University
113 Estimating the Equity Risk Premium and Expected Equity Rates
of Return: e Case of Canada
Laurence Booth, University of Toronto
126 Save the Buyback, Save Jobs
Greg Milano and Michael Chew, Fortuna Advisors
VOLUME 31
NUMBER 1
WINTER 2019
APPLIED
CORPORATE FINANCE
Journal of
81
Journal of Applied Corporate Finance • Volume 30 Number 4 Winter 2019
T
e explosion in takeover activity in the 1980s brought a
comparably sweeping reaction from politicians, jurists, and
corporate America itself. Legislators of many states passed
laws designed to limit hostile takeovers, and securities lawyer
Martin Lipton developed the shareholder rights plan dubbed
the “poison pill” that inhibited the acquisition of a control-
ling block of stock by a corporate raider. By the end of the
decade, state and federal courts gave their imprimatur to both
the constitutionality of the state laws and the legality of the
poison pill, enabling a target board of directors to “just say no”
to unwanted takeover oers by potential bidders. And by 1991,
87% of the companies listed on the NYSE or AMEX were
covered by either poison pills, state antitakeover laws, or both.³
ere are two diametrically opposed views of the causes
and eects of takeover impediments such as state antitakeover
laws and poison pills. Takeover defenses oer potential costs
as well as benets. Such defenses could entrench incum-
bent management and thereby harm target shareholders. On
the other hand, they could give greater bargaining power to
the target board of directors, thereby helping target share-
holders get a higher price for their shares. Although the two
views—which we refer to henceforth as the “management
entrenchment” and the “shareholder bargaining power”
*This article is a shorter, less technical version of the original article, which appeared
in the Journal of Corporate Finance, Vol. 49 (2018), pp. 104-119. The authors thank
seminar participants at the University of Georgia, Georgia State University, University of
Kansas, Harbin Institute of Technology, and the Midwest Finance Association annual
meeting (2017) for comments.
1 See Weston, Mitchell, and Mulherin (2004). Full citations of all studies and books
cited are provided in the References at the end of the article.
2 See Mitchell and Mulherin (1996).
3 Comment and Schwert (1995).
4 As rst modeled by DeAngelo and Rice (1983).
hypotheses—have very dierent empirical predictions; there
is no clear agreement as to which hypothesis is correct.
In this paper, we provide new empirical tests that are
designed to discriminate between the entrenchment and
bargaining power hypotheses. We develop a random sample of
corporate takeovers from 1981 to 2014. Our use of a random
sample enables us to perform a detailed, “micro-analytic”
treatment of a representative sample of corporate takeovers.
We then compare and contrast the corporate takeover market
in the 1980s with later time periods. After corroborating the
signicant upward trends in takeover impediments over time
in our sample, we address the following question: How has
takeover competition changed between the 1980s and later
time periods? Has it gone down, as predicted by the entrench-
ment hypothesis, or has takeover competition remained largely
unaected, as suggested by the bargaining power hypothesis?
e most novel feature of our analysis is its eort to assess
the intensity of takeover competition between 1980 and 2014
by looking more deeply into the takeover auction process for
our sample companies. We focus on the “depth” of bidding
during the entire takeover auction process rather than simply
5 See Straska and Waller (2014) for a recent survey of the empirical studies.
6 In this regard, our study resembles the approach of Cliff Holderness’s remarkable
study of the concentration of ownership in U.S. public companies. See Holderness
(2009). While we derive our list of transactions from the now-standard source, Securities
Data Corp (SDC), the bulk of our data is collected from the merger and tender offer lings
made with the U.S. Securities and Exchange Commission (SEC) in conjunction with the
sample deals. Starting in the mid-1990s, such documents are drawn from SEC EDGAR.
For earlier years, we use microche, LexisNexis, and Thomson One Financial to obtain
SEC lings. For some deals in our sample, we supplement the information from SEC l-
ings with other sources such as legal cases associated with the deals.
7 Our multi-decade analysis follows the approach of recent work by Cremers and Fer-
rell (2014) on 30 years of shareholder rights and by Cain, McKeon, and Solomon (2017)
on state laws and ve decades of hostile takeovers.
by Tingting Liu, Iowa State University, and J. Harold Mulherin, University of Georgia*
he decade of the 1980s saw a sea change of activity in the corporate takeover
market. Indeed, M&A textbooks refer to the 1980s as “The Deal Decade.”1 And in
a study one of us co-authored with Mark Mitchell, we reported that some 57% of
our sample of 1,000 of the largest U.S. public corporations either experienced a takeover
attempt or engaged in a major asset restructuring during the decade.2
How Has Takeover Competition
Changed Over Time?
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