An Examination of Takeovers, Job Loss and the Wage Decline within UK Industry

This paper investigates the effects of takeovers on workers’ employment prospects and wages in the UK for the years 1987–1995. We address directly the idea that takeovers involve a ‘breach of trust’ with employees. Our results provide no support for the breach of trust hypothesis and rather suggest shareholders and workers in the post‐acquisition joint entity are locked in a form of ‘equal misery’ following the execution of the takeover. There already an exist a wide range of event studies documenting the effect of takeovers on shareholders and a smaller number of studies discussing the impact of takeovers on employees. The contribution of the present study is to relate the separate effects of acquisition on these two groups to each other. By doing so we seek to test directly the proposition that takeovers reallocate rents from workers to target shareholders, via the bid‐premia paid on acquisition.