The art of the split: Activist-induced divestitures & corporate value creation

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Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis

Authors

Date

2024

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Finance

Language

en

Pages

53 + 7

Series

Abstract

This study investigates how and if hedge fund activists create value by breaking-up and splitting companies utilizing a sample of 3,834 divestitures in the U.S. between 1990-2024. We find activists create substantial value throughout their involvement in the corporate divestiture process, displaying up to 7.8% incremental cumulative abnormal returns from campaign to divestiture. Magnitudes of which are economically meaningful, amounting to approximately USD 1.2bn in incremental shareholder value. We show activists drive value creation by acting as external disciplinaries, pushing management to divest proportionally larger assets, otherwise outside managements core competencies and interests. Moreover, activists use their extensive experience and networks in the market for corporate control to influence divestiture execution, visible through enhanced market timing, increased probability of sale to a financial acquirer, and a tendency to utilize exotic structures such as spin-offs, and professional deal certainty enhancing transaction terms.

Description

Thesis advisor

Puttonen, Vesa

Keywords

investor activism, hedge funds, divestitures, M&A, corporate finance

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202408255625

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[gradu] Kauppakorkeakoulu / BIZ