By Covering Business March 14, 2012
When one company acquires another, workforce redundancies can lead to layoffs at any level, but the chief executive of the target company almost always loses his job. So although a CEO has a fiduciary responsibility to act in the best interests of his shareholders, pursuing a merger that could benefit them may come at a great personal cost – unless he already has one foot out the door.
CEOs at retirement age have markedly less to lose in a merger than CEOs younger than 65. To assess whether these stakes affected merger outcomes, researchers at Stanford and Dartmouth looked at all public companies from 1992 to 2008 and determined whether there was a statistically significant difference in the likelihood of receiving a takeover bid if the target CEO was at least 65 years old. Here’s what they found:
• About 4% of companies with CEOs younger than 65 received takeover bids. About 6% of companies with CEOs 65 or older received bids. In other words, having a CEO at retirement age made a company 50% more likely to receive a takeover bid.
• Takeover premiums are lower at companies in which the target CEO is at retirement age, suggesting that CEOs who are ready to retire are less concerned with maximizing the merger’s value for stakeholders.
“The fact that merger patterns change abruptly at age 65 suggests that we are in fact capturing an effect of CEO preferences: any other determinants of mergers that are correlated with CEO age are unlikely to change discretely just because a CEO reaches retirement age.”
Read the full report.
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