Activism mergers

Shareholder value creation from hedge fund activism occurs primarily by influencing takeover outcomes for targeted firms. Controlling for selection decisions, activist interventions substantially increase the probability of a takeover offer. Third-party bids for targets have higher returns, premia, and completion rates, but these patterns reverse when the activist is the bidder. Failed bids for activism targets lead to improvements in operating performance, financial policy, and positive long-term abnormal returns, suggesting that activism enhances value. The positive long-term performance from hedge fund activism arises from monitoring target management during merger and acquisition contests and not from target undervaluation or bidder overpayment

Did Structured Credit Fuel the LBO Boom?

We demonstrate a link between the twin storms underlying the current financial crisis – the market for collateralized debt obligations (CDOs) and the market for leveraged loans. We show that structural changes in credit markets that led to the explosion in CDOs created an increased supply of bank loans for funding LBOs. This structured lending supported by CDOs led to cheaper credit, looser covenants, and more aggressive use of bank loans in financing LBOs. However, in sharp contrast to the LBO boom in the late 1980s, this easy credit did not lead to riskier LBO deals or deal structures. Our findings point to the effects of disintermediation of banks as they switched from an originate-and-hold to an originate-to-distribute lending model

Wnt Secretion from Epithelial Cells and Subepithelial Myofibroblasts Is Not Required in the Mouse Intestinal Stem Cell Niche In Vivo

Summary Wnt signaling is a crucial aspect of the intestinal stem cell niche required for crypt cell proliferation and differentiation. Paneth cells or subepithelial myofibroblasts are leading candidate sources of the required Wnt ligands, but this has not been tested in vivo. To abolish Wnt-ligand secretion, we used Porcupine (Porcn) conditional-null mice crossed to strains expressing inducible Cre recombinase in the epithelium, including Paneth cells (Villin-CreERT2); in smooth muscle, including subepithelial myofibroblasts (Myh11-CreERT2); and simultaneously in both compartments. Elimination of Wnt secretion from any of these compartments did not disrupt tissue morphology, cell proliferation, differentiation, or Wnt pathway activity. Thus, Wnt-ligand secretion from these cell populations is dispensable for intestinal homeostasis, revealing that a minor cell type or significant and unexpected redundancy is responsible for physiologic Wnt signaling in vivo

How Do Pensions Affect Corporate Capital Structure Decisions?

This paper examines the capital structure implications of defined benefit corporate pension plans. The magnitude of the liabilities arising from these pension plans is substantial. We show that leverage ratios for firms with pension plans are about 35% higher when pension assets and liabilities are incorporated into the capital structure. We estimate that the tax shields from pension contributions are about a third of those from interest payments. Pension contributions have a modest effect in lowering firms’ marginal corporate tax rates. Once pensions are considered, firms are less conservative in their choice of leverage than has been previously thought. We show that firms incorporate the magnitude of their pension assets and liabilities into their capital structure decisions

(WP 2011-01) It Takes Two: The Incidence and Effectiveness of co-CEOs

This study examines the phenomenon of co-CEOs within publicly traded firms. Although shared executive leadership is not widespread, it occurs within some very prominent firms. We find that co-CEOs generally complement each other in terms of educational background or executive responsibilities. Our results show that firms most likely to appoint co-CEOs have lower leverage, a more limited firm focus, less independent board structure, fewer advising directors, lower institutional ownership and greater levels of merger activity. The governance structure of co-CEO firms suggest that co-CEOships can serve as an alternative governance mechanism, with co-CEO mutual monitoring substituting for board or external monitoring and co-CEO complementary skills substituting for board advising. An event study indicates that the market reacts positively to appointments of co-CEOs while a propensity score analysis shows that the presence of co-CEOs increases firm valuation

Activism and empire building

Hedge fund activists target firms engaging in empire building and improve their future acquisition and divestiture strategy. Following intervention, activist targets make fewer acquisitions but obtain substantially higher returns by avoiding large and diversifying deals and refraining from acquisitions during merger waves. Activist targets also increase the pace of divestitures and achieve higher divestiture returns than matched non-targets. Activists curtail empire building through the removal of empire building chief executive officers (CEOs), compensation based incentives, and appointment of new board members. Our findings highlight an important channel through which activists improve efficiency and create shareholder value

Cytoskeletal mechanics of proplatelet maturation and platelet release

New steps in the process of conversion of proplatelet extensions from megakaryocytes into mature platelets are defined