Takeovers: The Controversy and the Evidence

WILLIAM G. KARNES SYMPOSIUM ON MERGERS, Charles M. Linke, ed., University of Illinois at Urbana-Champaign, Champaign, Illinois, pp. 27-39, 1986

18 Pages Posted: 11 Nov 2002

See all articles by Michael C. Jensen

Michael C. Jensen

Harvard Business School; SSRN; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit

Abstract

The market far corporate control that has arisen in the last two decades is generating large benefits for shareholders and for the economy as a whole. The corporate control market generates these gains by loosening control over vast amounts of resources and making it possible for those resources to move more quickly to their highest-valued use. This occurs through: takeovers, both hostile and friendly; divestitures; spinoffs; liquidations; leveraged buyouts; and going private transactions.

We are seeing a normal healthy market in operation, both on the takeover side and on the divestiture side. The total benefits have been huge as reflected in gains of 535 billion to stockholders of acquiring and acquired firms in approximately the 50 largest takeovers in the last four years. Since takeovers are investments taken under great uncertainty, it is not surprising that, as in every investment activity, not all ventures are successful. Those who criticize takeovers and mergers by pointing to those that fail are missing the point. On average, takeovers create value through increased efficiencies of various types.

Keywords: Takeovers, mergers, raiders, corporate control, value creation, restructuring, spinoffs, leveraged buyouts, going private transactions

Suggested Citation

Jensen, Michael C., Takeovers: The Controversy and the Evidence. WILLIAM G. KARNES SYMPOSIUM ON MERGERS, Charles M. Linke, ed., University of Illinois at Urbana-Champaign, Champaign, Illinois, pp. 27-39, 1986. Available at SSRN: https://ssrn.com/abstract=321523 or http://dx.doi.org/10.2139/ssrn.321523

Michael C. Jensen (Contact Author)

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