Value creation from spin-offs and equity carve-outs: Evidence from Europe and USA between 2004 and 2014

Abstract

Purpose of the study The earlier study show that spin-off and equity carve-out announcements are associated with the positive announcement returns. The earlier study have also find some evidence that these abnormal returns would hold in the long run. However, the majority of earlier studies have been conducted using data from the US markets while European spin-offs and equity carve-outs have remained relatively little studied.

In this thesis, I study the effects of both US and European spin-off and equity carve-out events at the announcement and over the long-term. I focus on the parent companies. I also study the difference between US and European events and sources of value creation.

Data The data used in this study is collected from several sources. The spin-off and equity carve-out event information is collected from Thomson OneBanker while the relevant stock market data is collected from Datastream. The data is collected for the period starting in 2004 and ending in 2014. The final sample of spin-offs consists of 320 spin-offs out of which 205 from USA and 115 from Europe. The final sample of equity carve-outs consists of 131 equity carve-outs out of which 53 from USA and 78 from Europe.

Key findings I find that both spin-off and equity carve-out announcements create statistically significant positive cumulative average abnormal returns for the parent companies. I do not find any statistically significant evidence to support that there would be difference between the US and European events. Increase in industry focus and geographical focus do not explain the announcement returns. Completion of the announced event on the other hand has explanatory power. Completed spin-offs create more value compared to withdrawn spin-offs while in case of equity carve-outs the effect is opposite. Finally, I show that spin-offs and equity carve-outs destroy value over the long-term.