Hostile Takeovers in the UK and the Correction of Managerial Failure

Abstract

The paper examines the disciplining function of hostile takeovers. It reports evidence of high board turnover and significant levels of restructuring post takeover. Large gains are anticipated in hostile bids as reflected in high bid premia. However, there is little evidence of poor performance prior to bids suggesting that the high board turnover does not derive from past managerial failure. Hostile takeovers do not therefore perform a disciplining function. Instead, rejection of bids appears to derive from opposition to redeployment of assets post takeover and renegotiation over the terms of bids.

JEL Classification: G34