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

Published online by Cambridge University Press:  06 April 2009

Kent Clark  and
Eli Ofek
Kent Clark
Affiliation:
Goldman, Sachs & Co., 32 Old Slip, New York, NY 10005
Eli Ofek
Affiliation:
Stern School of Business, Tisch Hall, 40 West Fourth Street, New York University, New York, NY 10012.
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 29 , Issue 4 , December 1994 , pp. 541 - 565
Copyright
Copyright © School of Business Administration, University of Washington 1994

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