Acquisition of Divested Assets and Shareholders' Wealth

Authors

  • NEIL W. SICHERMAN,

  • RICHARD H. PETTWAY

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    • College of Business, University of South Carolina and College of Business, University of Missouri at Columbia, respectively. This paper was begun when both authors were at the University of Florida.

ABSTRACT

The divesting of corporate assets has become quite popular. Previous studies of divestitures have found conflicting impacts upon shareholders' wealth of the buying firm. This study measures the impacts of product-line relatedness between the acquiring firm and the divested unit and financial weakness of the selling firm upon the abnormal returns to the acquiring firm. Although the study finds that the impact of financial strength of the seller is ambiguous, the purchase of related assets produces more wealth than does the purchase of unrelated divested units. Further, firms that purchase related divested units have larger proportions of insider ownership.

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