According to the passage, under which of the following conditions firms on the average yield the greatest return to their shareholders?

1. When they decline any initial offer from a second bidder.
2. When they resist all takeover attempts.
3. When they are successfully acquired on the initial takeover bid.
4. When they are acquired by another bidder after an initial unsuccessful takeover bidder.

   Directions: Answer the question based on the following passage.

   The 1980s have come to be regarded as the decade of corporate consolidation in the United States, with the number of mergers and their dollar value both setting records. Many public forums have questioned, on both social and economic grounds, the merits of this takeover frenzy. Even more controversial than the mergers themselves, however, is the reaction of the management of target firms. No longer is management content to be passive or to put up minimal resistance in the face of an unwelcome takeover attempt. Indeed, the responses of target managements have become as imaginative as the methods used by the would–be acquirers. These so–called antitakeover tactics have received nearly universal condemnation from government regulatory bodies, the financial press, and some academic publications. Why is there so much criticism when management resists takeovers? At the most general level, such criticism is based on studies that find a negative return to shareholders when a negotiated (friendly) merger is unsuccessful. These studies examine the cumulative return from the period just prior to the first public announcement of the proposed merger through the announcement of cancellation. Results range from a total return of –9.02 per cent to + 3.68 per cent, with an average of –2.88 percent. In unsuccessful mergers, therefore, stockholders in target firms lose on average nearly 3 per cent of the shares' value.

   But looking at the returns only through the termination date can be misleading. Other studies examining the period from six months prior to an offer to six months after the offer have found that the total return averages nearly +36 per cent, even though the offer was unsuccessful. Given the typical stock market reaction to unsuccessful negotiated mergers, this is a curious finding. The explanation for this seeming anomaly emerges when firms are divided into two groups: those eventually acquired by some other bidder, and those not acquired. Firms that were not acquired eventually lost the entire 36 per cent return. But firms subsequently acquired, earned an additional 20 per cent return above the initial 36 per cent, earning shareholders a total return of 56 per cent. Those earnings compare favorably to the overall average return of 30 percent earned by shareholders & of all companies successfully acquired. These results suggest that some form of resistance by management may be desirable. Playing hard to get may influence the initial suitor to increase the bid, or it may permit time for competing bids to be submitted. It is possible, however, to have too much of a good thing. When management actions are designed solely to eliminate a takeover by a specific bidder, then shareholders may be harmed. Nevertheless, antitakeover tactics do not deserve the blanket condemnation they receive in the press.