Do shareholders of acquiring firms gain from acquisitions?

We examine a sample of 12,023 acquisitions by public firms from 1980 to 2001. Shareholders of these firms lost a total of $218 billion when acquisitions were announced. Though shareholders lose throughout our sample period, losses associated with acquisition announcements after 1997 are dramatic. Small firms gain from acquisitions, so that shareholders of small firms gained$8 billion when acquisitions were announced and shareholders of large firms lost $226 billion. We examine the cross-sectional variation in the announcement returns of acquisitions. Small firm shareholders earn systematically more when acquisitions are announced. This size effect is typically more important than how an acquisition is financed and than the organizational form of the assets acquired. The only acquisitions that have positive aggregate gains are acquisitions of subsidiaries.

Asset Liquidity and Segment Divestitures

We investigate a sample of firms whose number of reported segments falls by one or more for the first time in their reporting history. The firms in our sample have a significantly larger diversification discount, underperform, and underinvest relative to comparable firms. Firms are more likely to divest segments from industries with a more liquid market for corporate assets, segments unrelated to the core activities of the firm, poorly performing segments, and small segments. The liquidity of the market for corporate assets plays an important role in explaining why some firms divest assets while others stop reporting them without divesting them, and why some firms divest core segments while others divest unrelated segments.

Corporate Focusing and Internal Capital Markets

A sample of firms that focus by divesting at least one segment allows us to investigate the characteristics of segments divested as well as the nature of focusing firms. We find that firms are more likely to divest segments unrelated to the core activities of the firm and that the probability that a segment is divested is inversely related to its relative size within the firm. In fact, a segment's relative size is the variable that has the most explanatory power in predicting which segment a firm divests. We argue that this is consistent with the importance of asset market liquidity as a determinant of the divestiture decision. Financial constraints play an important role in determining which firms focus, which segments these firms divest, and in the market's reaction to divestiture announcements. Focusing firms perform less well and invest significantly less than heir non-focusing counterparts.

Densely Entangled Financial Systems

In [1] Zawadoski introduces a banking network model in which the asset and counter-party risks are treated separately and the banks hedge their assets risks by appropriate OTC contracts. In his model, each bank has only two counter-party neighbors, a bank fails due to the counter-party risk only if at least one of its two neighbors default, and such a counter-party risk is a low probability event. Informally, the author shows that the banks will hedge their asset risks by appropriate OTC contracts, and, though it may be socially optimal to insure against counter-party risk, in equilibrium banks will {\em not} choose to insure this low probability event. In this paper, we consider the above model for more general network topologies, namely when each node has exactly 2r counter-party neighbors for some integer r>0. We extend the analysis of [1] to show that as the number of counter-party neighbors increase the probability of counter-party risk also increases, and in particular the socially optimal solution becomes privately sustainable when each bank hedges its risk to at least n/2 banks, where n is the number of banks in the network, i.e., when 2r is at least n/2, banks not only hedge their asset risk but also hedge its counter-party risk.Comment: to appear in Network Models in Economics and Finance, V. Kalyagin, P. M. Pardalos and T. M. Rassias (editors), Springer Optimization and Its Applications series, Springer, 201

Angiotensin II-receptor subtypes in human atria and evidence for alterations in patients with cardiac dysfunction

Angiotensin II (All) has been implicated as an important factor in the pathophysiology of heart diseases. Following the recent identification of two subtypes of the All receptor in cardiac tissue of animals, we investigated the possible occurrence of these, or similar, subtypes in human atrial tissue. In right-atrial tissue from patients undergoing heart surgery, we determined the All-receptor profile in receptor binding studies, using [125I]-angiotensin as radioligand and All as well as two compounds selective for the receptor subtypes to identify and quantify All-receptor subpopulations. In 35 patients (23 requiring coronary bypasses, 10 vaivular surgery and two combined coronary and valvular surgery), the left-ventricular ejection fraction was determined in the preoperative phase, and right- and left-atrial pressure during surgery. In membranes of human right atria, All receptors are present in high density (median: Bmax= 294 fmol. mg−1 protein, range: 111-2073) and two different subtypes can be distinguished. Type-1 receptors (AT1) accounted for 33 ± l0% of the population whereas type-2 receptors (AT2) made up 67 ± 10% of the population. There was no correlation between any of the measured cardiac functions and total All-receptor density or receptor affinity. However, the percentage of AT1 receptors was higher in the atria of patients with normal right-atrial pressure; left-ventricular ejection fraction was positively and right-atrial pressure inversely correlated with the percentage of AT1 receptors (r=0·740 and -0·901, respectively; P<0·001, for both). Moreover, the percentage of AT receptors was directly correlated with the levels of left-atrial pressure (r=0·853; P<0·001). It is concluded that the ratio of AT1 to AT2 receptors correlates well with right-atrial pressure and left-ventricular function. This is a first indication of a possible involvement of All-receptor subtypes in the pathophysiology of cardiac dysfunction

Globalization, Governance, and the Returns to Cross-Border Acquisitions

Using a sample of control cross-border acquisitions from 61 countries from 1990 to 2007, we find that acquirers from countries with better governance gain more from such acquisitions and their gains are higher when targets are from countries with worse governance. Other acquirer country characteristics are not consistently related to acquisition gains. For instance, the anti-self-dealing index of the acquirer has opposite associations with acquirer returns depending on whether the acquisition of a public firm is paid for with cash or equity. Strikingly, global effects in acquisition returns are at least as important as acquirer country effects. First, the acquirer’s industry and the year of the acquisition explain more of the stock-price reaction than the country of the acquirer. Second, for acquisitions of private firms or subsidiaries, acquirers gain more when acquisition returns are high for acquirers from other countries. We find strong evidence that better alignment of interests between insiders and minority shareholders is associated with greater acquirer returns and weaker evidence that this effect mitigates the adverse impact of poor country governance.

Heart valve replacement with the Björk-Shiley and St Jude Medical prostheses: A randomized comparison in 178 patients

In 178 patients, a randomized prospective comparison between the 60° spherical disc Björk-Shiley (BS) and the St Jude Medical (SJM) heart valve prostheses was performed. Four-week perioperative mortality was zero in the BS (n = 84) and 4.3% in the SJM group (n = 94). During a mean ( ± SD) follow-up of 52 ± 20 months or 778 patient-years, late cardiac mortality per year was 2.4% in the BS and 2.2% in the SJM group. The yearly thromboembolic rates were 1.4% in the BS and 2.0% in the SJM group. There was no mechanical valve failure or haemolytic anaemia. Paravalvular leaks and major bleeding complications occurred at low rates in both groups (1.1% and2.2% per year in BS; 0.7% and 1.7% per year in SJM). Functional results were similarly good with 96% of patients with BS valves and 95% of patients with SJM prostheses being in NYHA classes I and II, respectively. We conclude that heart valve replacement with mechanical prostheses can be performed with equally good results using either the Björk-Shiley spherical disc valve or the St Jude Medical bileaflet prosthesi

Do Target CEOs Sell Out Their Shareholders to Keep Their Job in a Merger?

CEOs have a potential conflict of interest when their company is acquired: they can bargain to be retained by the acquirer and for private benefits rather than for a higher premium to be paid to the shareholders. We investigate the determinants of target CEO retention by the acquirer and whether target CEO retention affects the premium paid by the acquirer. The probability that a CEO is retained increases with a private bidder, the performance of the target, and with the fraction of target shares held by insiders. Regardless of the bidder type, we find no evidence that the premium paid is lower when the CEO is retained by the acquirer. Strikingly, the target stock price increases more at the announcement of an acquisition by a private firm when the CEO is retained than when she is not. This result holds whether the private acquirer is a private equity firm or an operating company and for management buyouts.

Target company cross-border effects in acquisitions into the UK

We analyse the abnormal returns to target shareholders in crossborder and domestic acquisitions of UK companies. The crossborder effect during the bid month is small (0.84%), although crossborder targets gain significantly more than domestic targets during the months surrounding the bid. We find no evidence for the level of abnormal returns in crossborder acquisitions to be associated with market access or exchange rate effects, and only limited support for an international diversification effect. However, the crossborder effect appears to be associated with significant payment effects, and there is no significant residual crossborder effect once various bid characteristics are controlled for