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Financial buyers in Takeovers: focus on cost efficiency

Financial buyers in Takeovers: focus on cost efficiency This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial buyers play a potentially beneficial role in the allocation of corporate assets in the US. economy. Our analysis of determinants of takeovers initiated by financial buyers uses an application of the methodology developed in Trimbath, Frydman and Frydman (2001). In order to illustrate efficiency enhancements introduced by financial buyers, we select Forstmann Little’s acquisition of General Instrument for a brief case study. We show that their aggressive programs of cost management substantially improved the efficiency of General Instrument. Moreover, it allowed General Instrument to expand research and development to become the global leader in high definition television. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Financial buyers in Takeovers: focus on cost efficiency

Managerial Finance , Volume 28 (12): 13 – Dec 1, 2002

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Publisher
Emerald Publishing
Copyright
Copyright © 2002 MCB UP Ltd. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074350210768176
Publisher site
See Article on Publisher Site

Abstract

This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial buyers play a potentially beneficial role in the allocation of corporate assets in the US. economy. Our analysis of determinants of takeovers initiated by financial buyers uses an application of the methodology developed in Trimbath, Frydman and Frydman (2001). In order to illustrate efficiency enhancements introduced by financial buyers, we select Forstmann Little’s acquisition of General Instrument for a brief case study. We show that their aggressive programs of cost management substantially improved the efficiency of General Instrument. Moreover, it allowed General Instrument to expand research and development to become the global leader in high definition television.

Journal

Managerial FinanceEmerald Publishing

Published: Dec 1, 2002

Keywords: Accounting research; Mergers and acquisitions; Efficiency; Financial investment; USA

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