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:
HEATHER M. HULBURT
West Virginia University
JAMES A. MILES
Pennsylvania State University
J. RANDALL WOOLRIDGE
Pennsylvania State University
Financial Management, Vol. 31, No. 1, Spring
2002
Abstract
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.
Patrick J. Cusatis
James A. Miles
J. Randall Woolridge
(all from Pennsylvania State University)
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.
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
James A. Miles and James Rosenfeld
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.