Reacquisitions vs. “regular” acquisitions and divestitures: A comparison of investor responses

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Abstract

Studies on mergers and acquisitions (M&A), as well as on divestitures, suffer from heterogeneity within their research universe. This study sheds light on one specific type of transaction that, despite its relevance, has remained understudied: reacquisitions. Reacquisitions are a type of M&A in which previously divested company parts are reacquired by parent companies. Drawing on recent research on how investors assess M&A (e.g., Harrison & Schijven, 2016; Schijven & Hitt, 2012), as well as on the occurrence of reacquisitions (e.g., Gleason, Madura, & Pennathur, 2006), we focus on three empirical questions and show that most reacquisitions are likely to be associated with negative signals about potential synergy, as well as with information about problems or threats related to the reacquiring companies. Based on an event study of 71 reacquisitions and 71 divestitures followed by reacquisitions, and comparing them against “regular” M&A and divestitures, we find, inter alia, that investors assess reacquisitions significantly more negatively than regular M&A. Our findings support the view that investors’ assessments are based on incomplete information and do not necessarily reflect actual performance.

Keywords: Reacquisition, Mergers and Acquisitions, Event Study, Information Asymmetry, Efficient Market Hypothesis

Authors’ individual contributions: Conceptualization — B.D. and D.z.K.-A.; Methodology — B.D.; Writing — Original Draft — B.D. and D.z.K.-A.; Investigation — B.D.; Writing — Review & Editing — B.D. and D.z.K.-A.; Supervision — D.z.K.-A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: An early draft of this paper, coauthored by Benjamin Dietz and Dodo zu Knyphausen-Aufseß, has been a part of the first author’s dissertation “Understanding reacquisitions: Why companies reacquire formerly divested company parts and how this influences the entities involve” (Dietz, 2015a).

JEL Classification: M10, L1, L2

Received: 22.05.2021
Accepted: 04.08.2021
Published online: 06.08.2021

How to cite this paper: Dietz, B., & zu Knyphausen-Aufseß, D. (2021). Reacquisitions vs. “regular” acquisitions and divestitures: A comparison of investor responses. Corporate & Business Strategy Review, 2(1), 54-68. https://doi.org/10.22495/cbsrv2i1art5