Defensive Strategies in Takeovers
Since the inception of the first large merger and acquisition (M&A) deals in the United States toward the end of the 19th century, the market for corporate control has been one of the central pillars of a modern financial system. As such, it serves many important roles and provides various tools for market participants directed at increasing firm value and allocating capital in efficient ways (e.g., Allen and Kraakman, 2004). The possibility of transferring assets from one owner to another imposes a system of checks and balances on management and shareholders. That is, if managers fail to use capital in a way that maximizes financial output, capital and assets can be transferred to different owners and/or managers who are better capable of maximizing the value of these assets (e.g., Deakin and Slinger, 1997). In order to gain efficiency and increase overall value, the owners of assets can pool separately owned/managed assets within a given market, thus exploiting potential synergies. In a Modigliani and Miller-free (1958) world, business transactions can also increase corporate value simply by changing the financing structures of acquired companies.
Despite the many economic benefits of the theoretically free transferability of assets in capital markets, a free transferability ...