Bustup Takeovers of Value-Destroying Diversified Firms

J. OF FINANCE, Vol. 51 No. 4, September 1996

Posted: 2 Sep 1996  

Philip G. Berger

University of Chicago - Booth School of Business

Eli Ofek

New York University (NYU) - Department of Finance

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Abstract

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

Suggested Citation

Berger, Philip G. and Ofek, Eli, Bustup Takeovers of Value-Destroying Diversified Firms. J. OF FINANCE, Vol. 51 No. 4, September 1996. Available at SSRN: https://ssrn.com/abstract=7695

Philip G. Berger (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Eli Ofek

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

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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