NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Success of Acquisitions: Evidence From Disvestitures

Steven Kaplan, Michael S. Weisbach

NBER Working Paper No. 3484 (Also Reprint No. r1742)
Issued in October 1990
NBER Program(s):   ME

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.

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Document Object Identifier (DOI): 10.3386/w3484

Published: The Journal of Finance, Vol. XLVII, No. 1, pp. 107-138, (March 1992).

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