Partial acquisitions, corporate control, and performance

A partial acquisition represents a unique form of corporate restructuring because it alters the ownership structure of two entities (in opposite ways), and therefore alters the form of control over the target's management. The proportion of the partial target that is owned by other shareholders is reduced by the increase in ownership by the partial acquirer. Yet, the transaction is unique in that the target firm continues as a going concern. Therefore, the target can be evaluated over time to determine the impact of the restructuring. Given the shift in ownership structure and control over the partial target, the performance of partial targets could be affected. It is found that while the partial targets experience favourable valuation effects at the time of the announcement, there is no evidence of unusual long-term performance beyond the initial announcement effects. Therefore, the realized benefits to the partial target due to improved monitoring by the partial acquirer are limited on average to the initial market reaction. However, there is much dispersion in the performance levels of the partial targets following the date at which they were partially acquired. A cross-sectional analysis to determine whether the variance in performance levels among partial targets can be attributed to corporate control characteristics. It is found that the performance of the partial targets subject to the least amount of control before the partial acquisition is more favourable following the acquisition. This finding attributed to the greater change in discipline as a result of the partial acquisition. In addition, it is found that the performance of the target following the partial acquisition is conditioned on characteristics of the partial acquisition itself that represent the partial acquirer's degree of control over the partial target.