Bustup Takeovers of Value-Destroying Diversified Firms
Philip G. Berger
University of Chicago - Booth School of Business
New York University (NYU) - Department of Finance
J. OF FINANCE, Vol. 51 No. 4, September 1996
We examine whether the value loss from diversification affects takeover and break-up probabilities. We estimate diversification's value effect by imputing stand-alone values for individual business segments and find that firms with greater value losses are more likely to be taken over. Moreover, those acquired firms whose losses are greatest are most likely to be bought by LBO associations, which frequently break-up their targets. For a subsample of large diversified targets: (1) higher value losses increase the extent of post-takeover bustup; and (2) post-takeover bustup generally results in divested divisions being operated as part of a focused, stand-alone firm.
JEL Classification: G34
Date posted: September 2, 1996