Applied Mergers and Acquisitions. Robert F. Bruner

target="_blank" rel="nofollow" href="#ulink_c479dcd5-9e56-5b45-881a-f876361f5d7f">* Donaldson (1990) +1.13%† full sample +2.03%* noncore sales –0.43% core sales 11 7 4 1966–1989 Divestitures by General Mills only. Blackwell, Marr, Spivey (1990) –0.55%* full sample –0.59%* operation not profitable –0.24% labor-management dispute 244 196 9 1980–1984 Sample of announcements of plant closings. Sicherman, Pettway (1987) Buyers returns +4.026%* related businesses 0.047% unrelated businesses (days –10,[phone] Hite, Owers, Rogers (1987) + 1.66%’ hill sample, sellers in completed deals +0.83%‡ buyers in completed deals (returns estimated days –1,0) +2.18% sellers in completed deals –1.72% buyers in completed deals (returns estimated days +l,[phone] Sample of asset sales. Klein (1985) +1.11%* sample of sellers (days –2,0) 215 1970–1979 Sample of asset sales. Hearth, Zaima (1986) 1.42%* divesting firms 0.25% acquiring firms (days –1,0) 73 1975–1982 Sample of asset sales. Jain (1985) +0.07‡% sample of sellers +0.04% sample of buyers (days –5,–1) +0.34% sellers (day–1) 304 1976–1978 Sample of asset sales. Rosenfeld (1984) +2.33%* full sample 35 1963–1981 Alexander, Benson, Kampmeyer (1984) +0.17% full sample (days –1,0) –2.47% (days +l,[phone] Hite, Owers, Rogers (1987) +12.24%* at press date, full sample +5.97%* liquidations with prior control bids + 18.26%* liquidations with no prior control bids (returns estimated days –1,0) –5.96% full sample –4.79%* liquidations with prior control bids –7.08%*liquidations with no prior control bids (returns est’d. months 1,12) 49 24 25 1963–1978 Sample of voluntary liquidations. Kim, Schatzberg (1987) + 13.53%* at announcement date +2.84%* at stockholder confirmation date (returns estimated days –2,0) 73 1963–1982 Sample of voluntary liquidations.

      Unless otherwise noted, event date is announcement date of transaction.

*Significant at the 0.99 level or better.

†Significant at the 0.90 level.

‡Significant at the 0.95 level.

Third, firms selling assets tend to suffer from lower profitability or high leverage. Lang et al. (1995) concluded, “Management sells assets to obtain funds to pursue its objectives when alternative funding is either too expensive given its objectives or unavailable…. A successful sale means that the firm received enough money to make the sale worthwhile…. Firms selling assets typically are poor performers and they are more likely to pay out the proceeds when they find it difficult to service their debt.” (Page 22)

      Research on the Profitability of Carve-outs, Spin-offs, Split-offs, and Tracking Stock

The general finding is that carve-outs, spin-offs, and tracking stock are neutral to beneficial for shareholders. Exhibits 6.17 and 6.18 summarize studies of the event returns associated with spin-offs and carve-outs; these are generally profitable to investors. Exhibit 6.19 on page 164 shows that tracking stock is value neutral to slightly positive for investors.

      Research amplifies some of the insights. First, the investment behavior and financial performance of spun-off units improves following the spin-off. Gernter, Powers, and Scharfstein (2002) found that spun-off units tended to cut investment in unprofitable businesses and increase investment in profitable industries. Chemmanur and Paeglis (2001) found material increases in the price-earnings and price-sales ratios for parents and subsidiaries as a result of the transactions. Cusatis, Miles, and Woolridge (1993) documented significant returns over the longer term following spin-offs. Hurlburt et al. (2002) found that sales, assets, and capital expenditures of carved-out subsidiaries grew significantly faster than industry peers in the first year after the transaction; but the parent firm shrank. Ahn and Denis (2001) reported that diversified firms improved their investment efficiency and eliminated the diversification discount following