How does takeover benefits shareholders and penalize managers?

Question

I would like to know the relationship between takeover threats and corporate governance.

Answer 1

When there is a buy out, the price is usually set at a number higher than the going price. For instance if the stock was trading at $20, another corporation can come alone and offer $25 a share. The buyers go nuts and start selling. If the buying corporation owns over 50% of the shares, they can control the voting. Once they control the voting, they can oust the managers. If they own 100% of the shares, they can take the bought corporation off the market (so it's no longer trading). The buying corporation can keep or oust managers at will because they have 100% of the say. Microsoft has a tendancy to oust the managers while Tyco tends to let the company run like always.

Answer 2

If th emanagers are good they likely stay. Manager does not mean owner or even shareholder. Just talking higher-level workers. If a leveraged buyout there are likely to be heavier firings to be able to pay the debt down but that keeps things efficient. Most companies are fat & lazy inside & need the outside pressure.