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An examination of the long‐term performance of reacquired carve‐outs

An examination of the long‐term performance of reacquired carve‐outs Purpose – The purpose of this paper is to provide a comprehensive initial evaluation of divestiture gains for reacquired carve‐out parent and subsidiary second event and three‐year returns for the period 1980‐2010. Design/methodology/approach – Using several variables, we contrast reacquired carve‐out parent and subsidiary second event returns with those for acquired carve‐outs. Similarly, we contrast carve‐out parent three‐year returns. Findings – We observe several differences between reacquired (RACO) and acquired (AQCO) carve‐outs. Indicating less competition for RACO prices, RACOs have lower market capitalization on the day before reacquisition. Supporting a certification effect for Thermo Electron, parent three‐year post reacquisition returns are positive versus negative returns for other RACO parents. Our multiple regression variables explain 27.53 percent of the subsidiary reacquisition announcement returns of 11.63 percent and explain 19.84 percent of the variation of parent three‐year returns. Originality/value – This study makes several contributions to the literature. It is the first study to contrast the long‐term results of reacquired carve‐outs and their parents with those of acquired carve‐outs and their parents. Also, Gleason et al. ’s study of reacquired carve‐outs has been extended in several ways. First, parent company three‐year returns after the reacquisition was examined. Next, returns for reacquired carve‐outs were contrasted with acquired carve‐outs. Updating Allen's study, it is reported that, except for one subsidiary acquired by a third party, all subsidiaries were reacquired by Thermo Electron. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

An examination of the long‐term performance of reacquired carve‐outs

Managerial Finance , Volume 39 (6): 15 – May 3, 2013

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References (28)

Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351311322852
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to provide a comprehensive initial evaluation of divestiture gains for reacquired carve‐out parent and subsidiary second event and three‐year returns for the period 1980‐2010. Design/methodology/approach – Using several variables, we contrast reacquired carve‐out parent and subsidiary second event returns with those for acquired carve‐outs. Similarly, we contrast carve‐out parent three‐year returns. Findings – We observe several differences between reacquired (RACO) and acquired (AQCO) carve‐outs. Indicating less competition for RACO prices, RACOs have lower market capitalization on the day before reacquisition. Supporting a certification effect for Thermo Electron, parent three‐year post reacquisition returns are positive versus negative returns for other RACO parents. Our multiple regression variables explain 27.53 percent of the subsidiary reacquisition announcement returns of 11.63 percent and explain 19.84 percent of the variation of parent three‐year returns. Originality/value – This study makes several contributions to the literature. It is the first study to contrast the long‐term results of reacquired carve‐outs and their parents with those of acquired carve‐outs and their parents. Also, Gleason et al. ’s study of reacquired carve‐outs has been extended in several ways. First, parent company three‐year returns after the reacquisition was examined. Next, returns for reacquired carve‐outs were contrasted with acquired carve‐outs. Updating Allen's study, it is reported that, except for one subsidiary acquired by a third party, all subsidiaries were reacquired by Thermo Electron.

Journal

Managerial FinanceEmerald Publishing

Published: May 3, 2013

Keywords: Carve‐outs; Divestitures; Acquisitions and mergers; Returns; Divestment; Parent companies; Subsidiaries

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