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Hostile takeovers fail to make firms more efficient.

The "red in tooth and claw" world of hostile takeovers does not create fitter firms, according to economists.

Despite the apparent logic of more efficient firms devouring their less agile rivals, academics at the Royal Economic Society's annual conference in the Midlands claimed there is little evidence of subsequent gains in productivity.

In fact, they said, hostile takeovers typically led to reductions in output and employment, mainly through divestment.

The four authors of the paper, Do Hostile Mergers Destroy Jobs? said: "The hostile takeover is the most controversial element of the Anglo-American system of corporate governance.

"Its proponents see it as the ultimate sanction on managerial under-performance - the threat to replace one managerial team with another dedicated to raising the return on corporate assets.

"Opponents argue hostile takeovers are costly, frequently mis-directed and the cause of systemic problems in the corporate sector, including, perhaps, short-termism. "

The conference at Warwick University heard yesterday that a survey of hostile takeovers showed there was little evidence of productivity or efficiency gains following acquisitions.

When the researchers looked at overall employment trends within 217 acquiring firms, they found evidence of job losses - particularly among hostile victors.

This indicated that while hostile acquisitions did not particularly lead to efficiency gains, they did tend to lead to cuts in employment and output as parts of the vanquished were sold.

The academics - Martin Conyon, of Warwick Business School, Sourafel Gimma, Steve Thompson and Peter Wright of Nottingham University - said: "Following a hostile acquisition, it seems reasonable to expect that rising productivity and the search for economies would be accompanied by job losses.

"Indeed, some go further and indicate that a hostile acquisition will be used to force through breaches of the workers' terms of employment, which will include job losses.

"These concerns have reinforced the calls of those seeking to restrict hostile takeovers by, for example, anti-takeover statutes in some American states and proposals for shareholder ratings changes in the UK.

"However, hostile acquisitions are not statistically different to friendly mergers, so there is no support for a policy which would make them more difficult to achieve."
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Publication:The Birmingham Post (England)
Date:Apr 2, 1998
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