HOSTILE TAKEOVERS invite strong reactions, both positive and negative, from academics as well as the general public. Yet fairly little is known about what drives these takeovers, which characteristically involve significant wealth gains to target firms ' shareholders. The question is where these wealth gains come from. We examine the sample of all 62 hostile takeover contests between 1984 and 1986 that involved a purchase price of $50 million or more. In these contests, 50 targets were acquired and 12 remained independent. We use a sample of hostile takeovers exclusively to avoid using evidence from friendly acquisitions to judge hostile ones, as many studies have done. We examine such post-takeover operational changes as divestitures, layoffs, tax savings, and investment cuts to understand how the bidding firm could justify paying the takeover premium. We also examine the possibility of wealth losses by bidding firms ' stockholders as the explanation for target shareholder gains. The analysis of post-takeover changes is complicated because once the target and the bidding firms are merged, it becomes impossible to attribute to the target the changes recorded in joint accounting data. As a consequence, we do not use such data, but rather focus on discussion in annual reports, 1OK forms, newspapers, magazines, Moody's and

Please do not cite or quote without author’s permission Advances in structural demand estimation have substantially improved economists ' ability to forecast the impact of mergers. However, these models rely on extensive assumptions about consumer choice and firm objectives, and ultimately observational methods are needed to test their validity. Observational studies, in turn, suffer from selection problems arising from the fact that merging entities differ from non-merging entities in unobserved ways. To obtain an accurate estimate of the ex-post effect of consummated mergers, I propose a combination of rival analysis and instrumental variables. By focusing on the effect of merger on the behavior of rival firms, and instrumenting for these mergers, unbiased estimates of the effect of merger on market outcomes can be obtained. Using this methodology, I evaluate the impact of all independent hospital mergers between 1989 and 1996 on rivals ’ prices. I find sharp increases in rival prices following merger, with the greatest effect on the closest rivals. The results for this industry are more consistent with predictions from structural models than with prior observational estimates.

Firms differ in their integration capability, which is the ability to absorb and manage businesses on a continuing basis. We expect integration capability heterogeneity to influence acquisition strategy by profit-seeking firms, affecting both their propensity to acquire and the types of businesses that they target. We argue that a firm’s integration capability increases with its product line scope and test two hypotheses: (1) firms with greater existing product line scope are more likely to be acquirers; and (2) firms with greater product line scope are more likely to purchase product lines that they already operate. Data from the U.S. medical sector between 1978 and 1995 support hypothesis 1. We then find that all firms tended to purchase product lines that they did not previously operate, but, consistent with hypothesis 2, that firms with greater product line scope made acquisitions that had greater overlap with their existing product lines. The results are analogous with the biological observation that the most successful predators are better able to target desirable prey as well as being better able to overpower the prey they target.

The purpose of this report is to contribute to the analysis of two questions. Should a merger control system take into account efficiency gains from horizontal mergers, and balance these gains against the anti-competitive effects of mergers? If so, how should a system be designed to account for efficiency gains? The report is based on a report to the European Commission. To help answer the two questions we start with an extensive review of the relevant economic research, including both theoretical and empirical studies of mergers and merger control. Next, we review the current legal practice in seven OECD jurisdictions. Finally, we propose a merger control system, emphasising the central role of informational limitations. Based on our conclusions from the empirical literature that efficiencies may need to be assessed on a case-by-case basis, we construct an information-economising twostage decision framework for evaluating mergers. In a first stage, notified mergers are assessed using routine tools with modest information requirements. Mergers that do not pass the first stage test are subject to further investigation, including an efficiency

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Joint production between rival firms often entails knowledge transfers without direct compensation, leaving the question as to why more efficient firms would give their rivals such an advantage. We find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit. We determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly. While consumers are harmed by such action, production efficiency normally increases sufficiently to cause welfare to increase.

Research in the strategy and international business literatures shows that firms often undertake acquisitions in order to exchange resources. The core arguments arise from theories of market failures, where market failures can stem from potential opportunism or from coordination difficulties. However, empirical research on cross-border and domestic acquisitions has not been able to reach a consensus regarding post-acquisition strategy and performance in the two types of cases. We show that the post-acquisition performance of acquisitions in both domestic and crossborder contexts varies with the extent of post-acquisition redeployment, which in turn depends on two factors, including the degree of asymmetry in the resource profiles of the firms and the extent of context-specificity of these resources. We undertake the analysis at a particularly fine-grained detail of analysis, examining four dimensions of resource asymmetry, as well as five dimensions of business performance. 1 This paper studies post-acquisition resource redeployment between target and acquiring businesses, comparing cross-border and domestic horizontal acquisitions. Acquisitions offer the potential to create value at the target and acquiring firms in both domestic and cross-border contexts. The value creation often stems from two conditions, concerning resource asymmetry and contextual similarity. First, post-acquisition resource redeployment allows firms to take advantage of asymmetries of the target and acquiring firms (Singh and Montgomery, 1987; Lubatkin and O'Neill, 1988; Hitt, Hoskisson, & Ireland, 1994; Nakamura, Shaver and Yeung, 1995). Second, contextual similarity will ease resource redeployment to and from target and acquiring firms (Kogut and Zander, 1993; Brannen, Liker, and Fruin, 1998)....

Why do regulatory authorities scrutinize mergers and acquisitions? The authorities themselves claim to be combating monopoly power and protecting consumers. But the last two decades of empirical research has found little supporting evidence for such motives. An alternative is that M&A regulation is actually designed to protect privileged firms. We provide a test of protectionism by studying whether European regulatory intervention is more likely when European firms are harmed by increased competition. Our findings raise a suspicion of protectionist motivations by the European regulator during the nineties. The results are robust to many statistical difficulties, including endogeneity between investor valuations and regulatory actions. 1 By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland, and very good wine too can be made of them at about thirty times the expense for which at least equally good wine can be brought from foreign countries.

Appendix I- A review of the literature on the ex-post assessment of merger decision I.1 In this Appendix we review the economic t literature on the subject of expost review of the effectiveness of competition law enforcement, and in particular of ex-ante merger control rules. I.1 The debate spurred by the Crandall-Winston paper I.2 Much of the recent debate on the need to perform an ex-post assessment of the effectiveness of the antitrust law enforcement has been spurred by a provocative paper by Crandall and Winston (2003). In this paper the authors offer a rather pessimistic view on the impact of the US antitrust policy on consumer welfare. Crandall and Winston review some literature on monopolization, collusion, and mergers enforcement and conclude that in all these areas the effect for consumers has been negative. I.3 Their assessment of the welfare consequences of the enforcement of the merger control regulation in the US is largely based on a model in which

We examine the abnormal returns of rival firms to determine whether four retailing mergers that occurred during the late 1980s reduced competition. We use the stock returns of retailers in geographic markets unaffected by the merger to control for the efficiency-signaling effect of the merger. Using this methodology, we find that rival firms experienced positive abnormal returns from May Company’s 1986 acquisition of Associated Dry Goods and American Stores ’ 1988 acquisition of Lucky Stores. These results offer some evidence that retailing mergers that lead to large increases in concentration in already concentrated markets may lessen competition and lead to higher product market prices.