If the market for mergers and acquisitions is observed over the last few decades, it is quite impressive by what amounts the number and dollar volume of takeovers have increased year by year.1 Although the rapid development has ceased over the past years, it is evident that mergers and acquisitions still play an important role in shaping the business landscape. In contrast, however, the benefits which are supposed to be generated by those takeovers are not that obvious. The topic of takeovers which turn out to be negative for shareholders is common and widely discussed in the financial business press. In spite of this fact, it is far less known what actually happens later on to those companies that realize one or more of these ‘bad’ acquisitions.
Observing these underperforming companies over time, it is disclosed that many of these ‘losers’ become takeover targets themselves afterwards.2 Hence, it seems to be the case that the takeover of the value destructing company is related to or a consequence of the previously made transactions. If that holds true, then it could be the case that the takeover market serves as a means to discipline inefficient managers for their underperformance.
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1 See Appendix I.
2 This assumption will be discussed more thoroughly in section 3.2. It relates to findings of the field study that was carried out by Mitchell and Lehn. See MITCHELL/LEHN (1990), p. 37.
Table of Contents
1 INTRODUCTION
1.1 Problem definition and objectives
1.2 Course of analysis
2 BASIC TERMINOLOGY
2.1 Definition: The market for corporate control
2.2 Definition: Successful and unsuccessful transactions
3 ANALYSIS OF RESEARCH UP-TO-DATE
3.1 Reasons for value-enhancing takeovers
3.2 Motivations and forces that discipline managers
3.2.1 The realization of restructuring measures due to takeovers
3.2.2 The realization of restructuring measures due to takeover threats
3.2.3 The realization of restructuring measures due to other control mechanisms
3.3 Critical review of empirical evidence
4 CASE STUDY BANKERS TRUST AND DEUTSCHE BANK
4.1 Facts and Background Information
4.1.1 Bankers Trust’s acquisitions
4.1.2 Deutsche Bank – Bankers Trust Deal
4.2 Analysis of Stock Price Performance
4.2.1 Case Study Methodology
4.2.2 Stock price performances
4.2.3 Reasons for observed results
4.3 Case Study Results versus Academic Research
5 CONCLUSION
Research Objectives and Topics
The primary objective of this paper is to investigate whether the takeover market serves as an effective mechanism to discipline managers who pursue value-diminishing transactions and whether the destroyed shareholder value can be recovered following such a disciplinary action. The analysis further explores the conditions under which these mechanisms function and compares theoretical academic findings with a practical case study.
- Mechanisms of the market for corporate control
- Disciplinary functions of takeovers and takeover threats
- Evaluation of stock price performance in merger transactions
- Impact of managerial decisions on firm value
- Internal versus external governance and control
- Integration and restructuring challenges in the banking sector
Excerpt from the Book
1.1 Problem definition and objectives
If the market for mergers and acquisitions is observed over the last few decades, it is quite impressive by what amounts the number and dollar volume of takeovers have increased year by year. Although the rapid development has ceased over the past years, it is evident that mergers and acquisitions still play an important role in shaping the business landscape. In contrast, however, the benefits which are supposed to be generated by those takeovers are not that obvious. The topic of takeovers which turn out to be negative for shareholders is common and widely discussed in the financial business press. In spite of this fact, it is far less known what actually happens later on to those companies that realize one or more of these ‘bad’ acquisitions.
Observing these underperforming companies over time, it is disclosed that many of these ‘losers’ become takeover targets themselves afterwards. Hence, it seems to be the case that the takeover of the value destructing company is related to or a consequence of the previously made transactions. If that holds true, then it could be the case that the takeover market serves as a means to discipline inefficient managers for their underperformance.
In the light of this background, it is the aim of this paper to investigate the following two main questions:
1. To what extend can the takeover market help to discipline managers of firms that undertake value diminishing transactions?
2. If it turns out to be true that the takeover market has a disciplinary function, can some of the previously destructed value be regained afterwards?
Chapter Summaries
1 INTRODUCTION: This chapter defines the research problem regarding underperforming firms and outlines the core objective of analyzing the disciplinary function of the takeover market.
2 BASIC TERMINOLOGY: This section provides foundational definitions for the market for corporate control and differentiates between successful and unsuccessful transactions.
3 ANALYSIS OF RESEARCH UP-TO-DATE: This part reviews existing theories and empirical evidence concerning how takeovers and takeover threats act as disciplinary mechanisms for inefficient management.
4 CASE STUDY BANKERS TRUST AND DEUTSCHE BANK: This section applies theoretical concepts to a real-world scenario by analyzing the performance and integration of the Bankers Trust and Deutsche Bank merger.
5 CONCLUSION: The final chapter summarizes the findings, confirming the disciplinary potential of the takeover market while noting the importance of considering external and complex factors.
Keywords
Mergers and Acquisitions, Market for Corporate Control, Disciplinary Takeovers, Shareholder Value, Value Diminishing Transactions, Corporate Restructuring, Bankers Trust, Deutsche Bank, Stock Price Performance, Corporate Governance, Management Turnover, Principal-Agent Conflict, Empirical Evidence, Takeover Threat, Financial Services Industry
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the disciplinary role of the takeover market, specifically investigating whether firms that engage in value-diminishing transactions become takeover targets and if this process leads to value recovery.
What are the central thematic fields covered?
The central topics include corporate control, the motivations behind takeovers, restructuring measures, and the effectiveness of management discipline via the stock market.
What is the primary research goal?
The goal is to determine if the market for corporate control effectively disciplines inefficient managers and if value can be regained after a disciplinary takeover occurs.
Which scientific methods are employed?
The study utilizes a review of academic research and empirical theories followed by a quantitative and qualitative event-study analysis of the Bankers Trust and Deutsche Bank merger.
What is discussed in the main part of the document?
The main part explains theories of corporate control, discusses the impact of takeover threats on management behavior, and provides a detailed case study of the Bankers Trust acquisition.
Which keywords best characterize the work?
Key terms include market for corporate control, disciplinary takeovers, shareholder value, and the Bankers Trust case study.
How did the Bankers Trust scandal influence the study's findings?
The scandal regarding high-risk derivatives in 1995 is identified as a factor that weakened the bank’s reputation and contributed to its vulnerability, illustrating the complexity of linking stock price movements to single causes.
Why did the study compare the 1980s and 1990s market environments?
The comparison highlights that the motives for takeovers shifted over time, with disciplinary takeovers being more prevalent in the 1980s compared to the synergy-driven expansions of the 1990s.
- Quote paper
- Martin Renze-Westendorf (Author), Franz Jaeger (Author), 2005, Successful vs. failed transactions: Are the looser of today the winner of tomorrow? , Munich, GRIN Verlag, https://www.grin.com/document/58646
