Voluntary Corporate Divestitures as Antitakeover Mechanisms.

This paper examines the investor reaction to the use of corporate selloffs as antitakeover devices. The results show that firms subject to takeover speculations prior to the divestiture announcement experience insignificant changes in share prices while firms that have no takeover bid report significant wealth increases. The majority of the firms that undergo defensive divestitures remain independent one year after the selloffs. These findings are consistent with the authors' proposition that investors regard divestitures following rumors of takeover attempt as antitakeover strategies. On the other hand, investors perceive selloffs in a takeover-free environment as a positive net present value decision. Copyright 1995 by MIT Press.