The Success of Acquisitions: Evidence from Disvestitures

39 Pages Posted: 5 Jul 2004 Last revised: 14 Jul 2010

See all articles by Steven N. Kaplan

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: October 1990

Abstract

This paper studies a sample of large acquisitions completed between 1971 arid 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. Using the accounting gain or loss recognized by the acquirer, press reports, and the sale price, we characterize the ex post success of the divested acquisitions and consider only 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer arid target) returns at the acquisition announcement are significantly lower for unsuccessful acquisitions than for divestitures not classified as unsuccessful arid for acquisitions not divested. These results suggest that market reactions to acquisition announcements reflect expectations of future profits and that unprofitable acquisitions are recognized as such when initiated. Diversifying acquisitions are almost four times more likely to be divested than related acquisitions. However, we do not find strong evidence that diversifying acquisitions were less successful than related ones.

Suggested Citation

Kaplan, Steven Neil and Weisbach, Michael S., The Success of Acquisitions: Evidence from Disvestitures (October 1990). NBER Working Paper No. w3484. Available at SSRN: https://ssrn.com/abstract=226700

Steven Neil Kaplan (Contact Author)

University of Chicago - Booth School of Business ( email )

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Michael S. Weisbach

Ohio State University (OSU) - Department of Finance ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

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