Mergers as a Means of Restructuring Distressed Firms: An Empirical Investigation

Kent A. Clark · Eli Ofek A

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Corporate Finance and Governance Corporate Insolvency and Governance Organizational Downsizing and Restructuring

Abstract

We examine 38 takeovers of distressed firms and find that these takeovers are more likely to involve firms in the same industry and less likely to be hostile takeovers than are acquisitions in general. We use five different measures to evaluate post-merger performance of the combined bidder and target firms. All performance measures suggest that bidders are unable to successfully restructure targets. The market demonstrates an ability to forecast the success of restructuring. Restructuring success is negatively related to the size of premium paid by the bidder for the target and positively related to the financial distress of the target.

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References

1977Determinants of corporate borrowing 1985Using daily stock returns 1983The market for corporate control 1990Do Managerial Objectives Drive Bad Acquisitions?1988Synergistic gains from corporate acquisitions and their division between the stockholders of target and acquiring firms 1988Stock prices and top management changes 1992The Post-Merger Performance of Acquiring Firms: A Re-Examination of an Anomaly 1988The Market for Corporate Control: The Empirical Evidence Since 1980

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1997Vulture investors and the market for control of distressed firms 2001Are cash acquisitions associated with better postcombination operating performance than stock acquisitions?1999When Does Restructuring Improve Economic Performance?1998Acquisitions as a Means of Restructuring Firms in Chapter 11 1996Evidence on real gains in corporate acquisitions 2004Corporate Acquisitions and the Operating Performance of Malaysian Companies

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