50 Pages Posted: 2 Apr 2019 Last revised: 11 Sep 2019
Date Written: March 11, 2019
This paper examines the relationship between targets’ asset divestitures and takeover premiums. We ﬁnd that divesting targets (divestors) receive lower oﬀered premiums, experience less positive announcement returns, and have a trade discount relative to non-divesting targets. We show that the eﬃciency of divestitures explains the eﬀects. Speciﬁcally, they are more pronounced when targets divest assets more eﬃciently, operate in non-competitive industries, or announce divestitures before Sarbanes Oxley Act. We further document that the neo-agency view “eat or be eaten” is only partially supported. Asset divestitures have no signiﬁcant eﬀects on transaction synergies and acquirer announcement returns. Overall, our ﬁndings support the view that asset divestitures increase target eﬃciency that deter the interest of potential bidders.
Keywords: Acquisition; Divestiture; Premium; Announcement Return; Efficiency
JEL Classification: G34
Suggested Citation: Suggested Citation