Divestitures Research:  Spin-offs and Equity Carve-outs


            Our divestitures research (parts done in collaboration with Patrick Cusatis, Heather Hulburt, Jim Rosenfeld, and Randy Woolridge) has been cited in virtually every major business publication including the Wall Street Journal, New York Times, Business Week, Fortune, Forbes, and Barrons.  The work includes analyses of both spin-offs and equity carve-outs:



Value Creation from Equity Carve-Outs


West Virginia University
Pennsylvania State University
Pennsylvania State University

Financial Management, Vol. 31, No. 1, Spring 2002



 Using a large sample of equity carve-out events during the 1980s and 1990s, we find that while parents of equity carve-outs experience an increase in share price at the time of announcement, rivals of carve-out parent firms display negative announcement-period returns. This finding distinguishes the divestiture gains hypothesis from the asymmetric information hypothesis. Additional tests provide further support for the divestiture gains hypothesis. Operating performance improvements for both parents and their carved-out subsidiaries are evident.



Some New Evidence That Spinoffs Create Value


Patrick J. Cusatis

James A. Miles

J. Randall Woolridge

(all from Pennsylvania State University)


Journal of Applied Corporate Finance 7(2)  100-107




It is well-known that spinoffs create value for shareholders.  In this paper, we document one source of that incremental value by showing that spinoffs, on average, are associated with subsequent improvements in operating performance.  Spunoff subsidiaries exhibit faster growth in sales, operating income, total assets and capital expenditures subsequent to the restructuring than are exhibited by comparable firms.  We conjecture that spinoffs benefit shareholders by providing a more decentralized and more market-based capital allocation process and we conjecture that spinoffs produce a more focused top management team, often motivated by significant stock-based compensation.



Restructuring through spinoffs:  The stock market evidence


Patrick J. Cusatis, James A. Miles, and J. Randall Woolridge


Journal of Financial Economics 33 (1993) 293-311 (No. 3)




We investigate the value created through spinoffs over the 1965-1988 period by measuring the stock returns of spinoffs, their parent firms, and parent-spinoff combinations for periods of up to three years following the spinoffs.  We find significantly positive abnormal returns for spinoffs, their parents, and the spinoff-parent combinations.  Both the spinoffs and parents experience unusually high incidence of takeovers  and the abnormal performance is limited to firms involved in takeover activity.  These findings suggest that spinoffs provide a low-cost method of transferring control of corporate assets to bidders who will create greater value.





The Effect of Voluntary Spin-off Announcements

On Shareholder Wealth


James A. Miles and James Rosenfeld


Journal of Finance 38(5) 1597-1606




This paper presents evidence of the effect of a voluntary spin-off announcement on shareholder wealth.  The results show that spin-off announcements have a positive influence on stock prices and that the relative increase in share price is greater for large spin-offs than for small ones.  Spin-offs are observed to be increasing in frequency as a means of corporate restructuring.