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Financial Buyers in Takeovers: Focus on Cost Efficiency

Authors: Frydman, Halina
Frydman, Roman
Trimbath, Susanne
Keywords: Investment Banking;Corporate Finance and Governance;Mergers;Acquisitions;Econometric Methods
Issue Date: 1-Jan-2003
Publisher: Stern School of Business, New York University
Series/Report no.: SOR-2003-3
Abstract: This paper examines whether financial buyers are more likely to initiate takeovers of inefficient firms. We show that they indeed are and thus conclude that takeovers by financial buyers play a potentially beneficial role in the allocation of corporate assets in the U.S. economy. Our analysis of determinants of takeovers initiated by financial buyers uses an application of the methodology developed in Trimbath, Frydman and Frydman (2001). In order to illustrate efficiency enhancements introduced by financial buyers, we select Forstmann and Little’s acquisition of General Instrument for a brief case study. We show that their aggressive programs of cost management substantially improved the efficiency of General Instrument. Moreover, it allowed General Instrument to expand research and development to become the global leader in high definition television.
Appears in Collections:IOMS: Statistics Working Papers

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