What is a ‘Target Firm’
A target firm is a company which is the subject of a merger or acquisition attempt. A takeover attempt can take on many different flavors, depending on the attitude of the target firm toward the acquirer. If management and shareholders are in favor of the transaction, then a friendly and orderly transaction can take place. When there is opposition to the transaction, the target firm may attempt a variety of hostile actions hoping to thwart the takeover attempt.
Explaining ‘Target Firm’
Target firms are often acquired at a price in excess of their fair market value. This is rational when the acquiring firm perceives an additional strategic value to the acquisition, such as greater economies of scale. These economies do not always materialize however, since there can be additional hidden costs associated with the integration of two firms.
Further Reading
- Whistle-blowing: Target firm characteristics and economic consequences – meridian.allenpress.com [PDF]
- Target-firm information asymmetry and acquirer returns – academic.oup.com [PDF]
- Foreign takeover activity in the US and wealth effects for target firm shareholders – www.jstor.org [PDF]
- Antitakeover measures, golden parachutes, and target firm shareholder welfare – www.jstor.org [PDF]
- Top managerial prestige, power and tender offer response: A study of elite social networks and target firm cooperation during takeovers – pubsonline.informs.org [PDF]
- Factors affecting the magnitude of premiums paid to target‐firm shareholders in corporate acquisitions – onlinelibrary.wiley.com [PDF]
- Takeover resistance, information leakage, and target firm value – journals.sagepub.com [PDF]
- Target firm abnormal returns and trading volume around the initiation of change in control transactions – www.jstor.org [PDF]
- Friends or foes? Target selection decisions of sovereign wealth funds and their consequences – www.sciencedirect.com [PDF]
- Firm financial performance following mergers – link.springer.com [PDF]
