Financial buyers in Takeovers: focus on cost efficiency

Halina Frydman (Associate Professor, Stern School of Business, New York University, New York, NY 10012)
Roman Frydman (Professor, Department of Economics, New York University, New York, NY 10003)
Susanne Trimbath (Research Economist, Milken Institute, 1250 4th Street, Santa Monica, CA 90401)

Managerial Finance

ISSN: 0307-4358

Publication date: 1 December 2002

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 US. 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 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.

Keywords

Citation

Frydman, H., Frydman, R. and Trimbath, S. (2002), "Financial buyers in Takeovers: focus on cost efficiency", Managerial Finance, Vol. 28 No. 12, pp. 1-13. https://doi.org/10.1108/03074350210768176

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MCB UP Ltd

Copyright © 2002, MCB UP Limited

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