The reams of commentary on corporate mergers, acquisitions, and tender offers have focused largely on protection of shareholders of acquired (or target) companies from both the depredations of acquiring (or raider) companies and the cupidity of their own managements in either negotiating the terms or obstructing the accomplishment of transactions. Virtually no attention has been paid to the plight of shareholders of acquiring companies devastated by unwise acquisitions. This oversight is surprising: some acquisitions have been spectacular disasters, destroying hundreds of millions of dollars in the value of the acquiring company's stock.1 Nor are these isolated cases: on average, acquisitions produce little or no gain for acquiring companies.2 A few commentators have recommended eradicating unprofitable acquisitions by requiring approval of the acquirer's shareholders, altering the accounting treatment of mergers, or enjoining conglomerate mergers. Close analysis shows that these proposals would not solve the problem. This Article proposes instead a response based on the most reliable index of the profitability of an acquisition-the reaction of the acquirer's stock price.
Place of Original Publication
Northwestern University Law Review
80 Northwestern University Law Review 777 (1986)
Dent, George W., "Unprofitable Mergers: Toward a Market-Based Legal Response" (1986). Faculty Publications. 474.