Management buyouts and takeovers: A comparative empirical analysis.

Abstract

This thesis examines Management Buyouts (MBOs) and takeovers to empirically determine if the value generated in corporate control transactions is dependent on the match between the target and bidder. An examination of target firms shows that both MBO and takeover targets exhibit characteristics which could be sources of potential value to any bidder. However, the extent of this value, which can be generated by every bidder, appears to be small. The evidence in this thesis, therefore, supports the presence of match-specific benefits. The argument for facilitating the auction of target firms is based on the assumption that introducing additional bidders can increase the value generated by the acquisition. If, however, the value across bidders is the same, we have a common value auction instead of a private values auction and there are no clear-cut welfare implications. Hence the finding of match-specific benefits suggests that the premise for the argument for facilitating the auction of target firms is sound. Tests of the implications of the private and common value models regarding (i) preemptive bidding, (ii) the relation between total gains and the number of bidders and (iii) winner's curse are also conducted. High takeover bids deter competition from other bidders while high MBO bids do not. This suggests private values in takeovers but not in MBOs. Wealth gains in multiple bidder takeover contests, however, are not different from gains in single bidder contests rejecting the private values hypothesis. The results of the winner's curse hypothesis test are inconclusive. An examination of failed MBO attempts reveals that the positive abnormal returns earned on announcement of the MBO get dissipated if the MBO attempt fails. This is inconsistent with the gains in MBOs being a common value. In summary, the evidence in this thesis does not reject the hypothesis that the value generated in MBOs and takeovers includes a common component which is available to any bidder. However, the extent of this common value is small.