The Market for Corporate Control (Including Takeovers)

Abstract

Mergers, acquisitions and takeovers often imply dramatic changes for employees, competitors, customers and suppliers. Not surprisingly, the market for corporate control has generated controversy and is frequently regulated by law or business custom. Though transfers of control take place in many countries, explicit and public struggles for control occur most frequently in the U.S. and U.K. During most of the 20th century, critics of mergers and acquisitions in the U.S. pointed to the danger of monopoly and increased concentration. Partly in response to the emergence of new control transactions such as the hostile takeover and leveraged buyout, more recent criticism has focused on the consequences for corporate productivity, profitability and employee welfare. Subject to qualifications, the market for corporate control reallocates productive assets ? in the form of going concerns ? to the highest bidder. In cases where the bidder uses his own money or acts on behalf of the bidding firm1s shareholders, the asset goes to the highest value use. In cases where managers of the bidding firm are able to serve their own interests rather than the interests of shareholders, the market for corporate control plays a paradoxical role. It simultaneously provides (1) a means by which managers may acquire companies using other people's money and (2) a means by which they may themselves be disciplined or displaced.