Financial Buyers in Takeovers: Focus on Cost Efficiency

Milken Institute Working Paper No. 02-01

23 Pages Posted: 21 Nov 2002

See all articles by Halina Frydman

Halina Frydman

New York University (NYU) - Department of Information, Operations, and Management Sciences

Roman Frydman

New York University (NYU) - Department of Economics

Susanne Trimbath

STP Advisory Services, LLC; Creighton University, Department of Finance and Economics; Bellevue University - College of Business

Multiple version iconThere are 3 versions of this paper

Date Written: August 2002

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 U.S. 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 and 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.

Keywords: Investment Banking, Corporate Finance and Governance, Mergers and Acquisitions

JEL Classification: G24, G31, G34, C20

Suggested Citation

Frydman, Halina and Frydman, Roman and Trimbath, Susanne, Financial Buyers in Takeovers: Focus on Cost Efficiency (August 2002). Milken Institute Working Paper No. 02-01. Available at SSRN: https://ssrn.com/abstract=331360 or http://dx.doi.org/10.2139/ssrn.331360

Halina Frydman

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
212-998-0453 (Phone)

Roman Frydman

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Susanne Trimbath (Contact Author)

STP Advisory Services, LLC ( email )

PO Box 1252
Bellevue, NE 68005
United States
4029328888 (Phone)

HOME PAGE: http://www.STPAdvisors.com

Creighton University, Department of Finance and Economics ( email )

United States

Bellevue University - College of Business ( email )

United States

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