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QC.1.a. Explain the motives behind mergers and takeovers. (Maximum 250 words) QC.1.b. Consider the following two quotations. (Maximum 1500 words) The quotation below is taken from: Jensen and Ruback (1983) ‘The Market for Corporate Control’, Journal of Financial Economics, Vol. 11(April): 5-50. “Many controversial issues regarding the market for corporate control have yet to be settled and many new issues have yet to be studied. It is clear, however, that much is now known about this market. Indeed, it is unlikely that any set of transactions has been studied in such detail. In brief, the evidence seems to indicate that corporate takeovers generate positive gains, that target firm shareholders benefit, and that bidding firm shareholders do not lose. Moreover, the gains created by corporate takeovers do not appear to come from the creation of market power. Finally, it is difficult to find managerial actions related to corporate control that harm stockholders; the exceptions are those actions that eliminate an actual or potential bidder, for example, through the use of targeted large block repurchases or standstill agreements.” Jensen and Ruback (1983), p. 43. The quotation below is taken from: Renneboog and Zhao (2014) ‘Director networks and takeovers’, Journal of Corporate Finance, Vol. 28: 218–234. “In this paper, we focus on how the connections of bidder and target firms impact on various aspects of mergers and acquisitions (M&As) in the UK. In a network context, we study the frequency of takeovers, the M&A process (in particular, the duration of the negotiation and the success versus failure at the end of the negotiation process), the means of payment (allequity, all-cash or mixed offers), the retention or attraction of directors of the target firm on the board of the merged firm, and whether there is a difference in terms of abnormal returns at the announcement of connected and non-connected M&As.” Renneboog and Zhao (2014), page 219. Question QC1.b: Do takeovers increase the value of the target, or the bidder company, and/or aggregate market value? NB: 1) Understanding the notions in articles is more important than an entanglement with the advanced math in many articles; and 2) Do not plagiarise the article content, instead cite or better yet, paraphrase it and always give full references. This shows that your opinions are informed opinions.
