The Takeover Controversy: The Restructuring of Corporate America
Michael C. Jensen
Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
March 17, 1987
THE PODIUM, Beta Gamma Sigma: St. Louis, MO, September 1987
Corporate America is being restructured at a rapid pace. This restructuring is being accomplished through a variety of transactions in the market for corporate control and through voluntary actions of managers as they rationalize and refocus the firms they lead. These events take the form of hostile takeovers, voluntary mergers, leveraged buyouts, stockholder buyouts, spin-offs, split-ups, divestitures, asset sales, and liquidations.
In the last two years merger and acquisition activity has run at the rate of $180 billion in over 3,000 transactions per year. Last year over 1,200 of these transactions valued at over $45 billion were divestitures - sales of divisions by many of our largest corporations. This explains why these control transactions have not increased the concentration of economic power in large corporations.
Restructurings are frequently wrenching events in the lives of those linked to the involved organizations - the managers, employees, suppliers, customers and residents of surrounding communities. Restructurings usually involve transfers of ownership and major organizational changes (such as shifts in corporate strategy) to meet new competition or market conditions, increased use of debt, and a flurry of recontracting with managers, employees, suppliers and customers. This activity sometimes results in expansion of resources devoted to certain areas and at other times in contractions involving plant closing, layoff of top-level and middle managers, staff and production workers, and reduced compensation.
Number of Pages in PDF File: 14
Keywords: Corporate restructuring, divestitures, mergers & acquisitions, corporate control, takeovers, restructuring as a defenseAccepted Paper Series
Date posted: July 26, 2004 ; Last revised: January 11, 2012
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