Successful corporate takeover campaigns have boosted the stock prices of the companies involved by an average of 30 percent, a Securities and Exchange Commission advisory committee was told yesterday.
But the public has little chance to profit, according to a new study of corporate takeovers released yesterday. Ninety percent of the increase in stock prices during takeovers occurs during a 10 day period, starting from five to eight days before the official announcement of a tender offer until two days afterward. For the ordinary investor, that means the chance of a gain is slim after the takeover attempt becomes official.
The advisory committee of Wall Street veterans, corporate executives who have been both bidders and targets of takeovers, and academicians, is reviewing current laws and regulations governing tender offers at the request of the SEC. It is due to report to Congress by July.
The review was prompted by the spate of takeovers that began about two years ago. It will attempt to answer whether this activity is good for shareholders as well as for the economy as a whole.
In doing so, the members will focus on the arcane tactics and devices of takeovers: "golden parachutes"--contracts promising lucrative payments to executives forced out by a change in control; PacMan defenses--tendering for shares of the bidder; sale of the "crown jewels"--the company's assets-- before the company is acquired and "shark repellents" --charter and bylaw amendments to discourage takeover attempts.
Gene Jarrell, a University of Chicago economist, and Frank H. Easterbrook of the university's law school, told the panelists that takeovers usually result in a net rise in the stock price of the combined companies of between 6 and 10 percent, although they were not sure why.
They added the gain does tend to contradict the notion that the typical takeover results from managerial self-aggrandizement.
The reason considerable activity occurs before the announcement is because the takeover has to be reported to the SEC. More people become involved with the takeover at this point so more people get wind of it. The disclosure requirement has been in effect for 14 years since passage of the Williams Act which aims to make the takeover process fair for all parties.
The effect of such disclosure has had a negative effect on the bidder by allowing the takeover target time to mount a defense through litigation or some other means, such as finding a friendly acquirer or so-called white knight.
On the other hand, some targets gain because with more time they get higher tender premiums than they did before the regulation was enacted.