Showing papers on "Divestment published in 1999"

The long‐term performance of horizontal acquisitions

Abstract: This paper examines how value is created in horizontal mergers and acquisitions. More specifically, it examines the impact of post-acquisition asset divestiture and resource redeployment on the long-term performance of horizontal acquisitions. The data come from a detailed survey of acquiring firm managers and cover 253 horizontal mergers and acquisitions that were initiated by European and U.S. firms in manufacturing industries for the period 1988–1992. This study incorporates insights from the cost efficiency and resource-based theories to propose a model of the effects of asset divestiture and resource redeployment on long-term acquisition performance. Overall, our results show that both asset divestiture and resource redeployment can contribute to acquisition performance, with, however, a significant risk of damaging acquisition performance when the divested assets and redeployed resources are those of the target. Copyright © 1999 John Wiley & Sons, Ltd.

The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott

Abstract: This article examines the financial effects of shareholder pressure in what activists consider the visible and successful instance of social activism in investment policies, the boycott of South Africa designed to speed the end of the apartheid regime. It seems that socially activist shareholder pressure on corporations has become a fact of life. In 1987, the American Medical Association called on medical schools and their parent universities to divest tobacco holding stocks. The demand for stocks may be sufficiently elastic so that pressures by social activists merely redistribute ownership from socially active investors to other investors without affecting stock prices. South Africa itself may have switched to trading with other countries not participating in the boycotts at low cost. The alternative hypothesis is that activism and sanctions imposed measurable costs and constrained unique investment opportunities so that firm value was affected adversely. This alternative predicts that banks and corporations with South African operations and the South African financial markets experienced negative stock price reactions on the announcement of legislative and private investor sanctions.

The Diffusion of an Unsuccessful Innovation

Abstract: It is often assumed that only successful or effective innovations diffuse. This article examines the diffusion of an unsuccessful protest tactic used during the student divestment movement: the shantytown. Two factors led student activists to adopt it. The first factor was the media construction of the tactic as successful. The second factor was how this tactic fit with an existing student tactical repertoire and resonated with students' perceptions of South Africa. These factors led students to adopt it without attaining information about its effectiveness at actually forcing university divestment.

International sourcing and logistics: an integrated model

Abstract: Billions of dollars are being poured into developing nations by multinationals as part of their diversification, divestiture, facility location, and supplier selection strategies. By integrating the literature in international business, marketing, purchasing, and operations management, a contingency model is developed to minimize the overall costs of such decisions. This model provides linkages between the type of product, organizational and country characteristics, and the logistics and sourcing strategies. In addition, it provides specific recommendations to government officials in helping their countries become global platforms for manufacturing and attracting foreign investment.

Competition and productivity growth: the case of the u.s. telephone industry

Abstract: I. INTRODUCTION There are few empirical studies on the relative performance of firms in competitive and monopolistic markets. This contrasts with the large body of literature that compares the performance of privately owned and governmental firms. One reason for the scarcity of studies of the former type is that competitive and monopolistic firms rarely coexist in the same industry and country.(1) This makes it difficult to distinguish between industry and market structure effects. On the other hand, relying on intercountry comparisons as, for example, Caves, Christensen, and Swanson [1981] do for U.S. and Canadian railroads, renders the analysis potentially sensitive to country effects. The telephone industry in the United States offers one of the best opportunities for empirical analysis of the consequences of competition and monopoly. Some new entry in the long-distance telephone market was allowed by the early 1960s, while entry and competition in the local telephone market had yet to materialize by the beginning of the 1990s. Hence, it is appropriate to focus on differences in performance between AT&T Long Lines and the regional monopolies.(2) Since there may be differences in initial conditions between the local-service and long-distance markets, comparisons of performance should control for such differences. Both markets, however, clearly employ very similar technology. This, holding other relevant conditions constant, should lead to similar changes in productivity. To sharpen the analysis, we focus on differences in the annual rate of productivity growth and not the level. While local exchange carriers (LECs) still largely maintain their monopolistic position, rapid technological advance in telecommunications is changing the established market structure in the local telephone industry. The recent U.S. Telecommunications Act of 1996 was aimed at eliminating legal barriers that have suppressed technically feasible local competition. Certainly some competition in local telephone markets is under way. Is such competition socially justified and an appropriate objective of public policy? The effect of competition on productivity growth holds at least part of the answer. We need to know whether competitive markets are likely to raise efficiency in assessing how much effort should go into reducing entry barriers and increasing competition in the local telephone markets. Still another policy issue on which our study has a bearing is the relation of firm scale to costs. For example, in the context of recent mergers of regional telecommunication companies, are reductions in costs and increases in productivity a plausible expectation? Competitive effects in the telephone industry have been examined mainly through aggregate time series data. Thus, Oum [1990], using Chessler's competition index for long-distance service, concludes there have been positive effects of competition on productivity, whereas Crandall [1991], using a time dummy, finds the results inconclusive.(3) At the firm level, Denny, Fuss, and Waverman [1981] and Kiss [1983] decompose total factor productivity (TFP) growth for Bell Canada through estimated cost functions. Nadiri and Prucha [1989] measure productivity growth for the U.S. Bell system with several alternative cost models. But none of these careful firm level studies focuses on competitive effects. Ying and Shin [1993], on the other hand, do examine the spillover effect of the AT&T divestiture on cost saving by the regional companies. Their interesting study, which shows positive spillover effects, does not, however, permit strong conclusions because of the shortness of the period examined (1976-87). II. THE STATE OF COMPETITION IN THE U.S. TELEPHONE INDUSTRY Before the divestiture of AT&T, the U.S. telephone industry consisted of several vertically integrated common carriers. AT&T accounted for about 80% of industry revenues through a group of 22 operating companies plus the AT&T Long Lines. …

Corporate Focusing and Internal Capital Markets

Abstract: A sample of firms that focus by divesting at least one segment allows us to investigate the characteristics of segments divested as well as the nature of focusing firms. We find that firms are more likely to divest segments unrelated to the core activities of the firm and that the probability that a segment is divested is inversely related to its relative size within the firm. In fact, a segment's relative size is the variable that has the most explanatory power in predicting which segment a firm divests. We argue that this is consistent with the importance of asset market liquidity as a determinant of the divestiture decision. Financial constraints play an important role in determining which firms focus, which segments these firms divest, and in the market's reaction to divestiture announcements. Focusing firms perform less well and invest significantly less than their non-focusing counterparts.

Disentangling Value: Financing Needs, Firm Scope, and Divestitures

Abstract: This paper presents a rationale for divestiture consistent with one of the frequently cited reasons by divesting firms, namely, that the firm is undervalued and splitting the firm into its component businesses will make it easier for the market to value the components accurately. When firms are undervalued due to unobservability of divisional cash flows, they may resort to divestiture to raise capital while overvalued firms will use external equity. Diversification thus might result in costly future divestiture. Firms trade off this expected cost of diversification against the benefit of higher levels of cheaper internal capital in deciding the scope of the firm.

The US Divestment Movement

Abstract: US universities, pension funds, local governments, and other institutions faced ethical pressures to sell off their investments in companies doing business in South Africa. These demands originated with the campus divestment movement, which concentrated — almost by definition — on 150 or so highly endowed colleges and universities. This anti-apartheid activism began in the mid-1960s, accelerated after the Soweto rebellion and its aftermath, and peaked in response to the South African state of emergency imposed in 1985. A growing number of state and local governments in the US also added their weight to the divestment campaign from the late 1970s onward. By 1993, 40 of the top 50 colleges and universities (ranked by size of endowment) had some sort of divestment policy, as did the governments and pension funds of more than 100 states, counties, cities, and US territories.

The Bell System Divestiture/Deregulation and the Efficiency of the Operating Companies*

Abstract: A variety of casual evidence has been offered in measurement of the efficiencies, and inefficiencies, thought to flow from the Bell System divestiture and accompanying state regulatory reforms. To address several questions in this regard we estimate a regulated cost function for local exchange services using panel data on the divested Bell Operating Companies (BOCs). Divestiture and regulatory reform are found to have produced significant efficiencies, as of 1993 saving about 20 percent in cost relative to what would have obtained in the absence of these events. More specifically, to 1993 the divestiture yielded savings of $115.4 billion and state‐level regulatory reform yielded a slightly smaller $96.7 billion in savings (both measured in 1993 dollars). Output augmentation, factor bias, and allowed rate‐of‐return effects contribute in identified ways to these overall results.

Private Participation in Telecommunications : Recent Trends

Abstract: More than ninety developing economies opened their telecommunications sector to private participation between 1990 and 1998. These countries transferred to the private sector the operating or construction risk, or both, of more than 500 projects, attracting investment commitments of US$214 billion. Two-thirds of that amount has been invested in expanding and modernizing networks; the other third has gone to governments as divestiture revenues or license fees. The investment shows three main trends: Latin America is in the lead. Private participation takes place in increasingly competitive market structures. And divestitures and greenfield projects outnumber operations and management contracts.

Empirical Studies on Corporate Diversification

Abstract: The paper critically reviews the large amount of empirical studies on diversification strategies and on closely related topics (acquisition and divestment patterns, corporate coherence, return to the core). In the theoretical literature three main motivations have been proposed to explain multioutput production: the resource view, the agency view and the market power view. Since all theories have been developed mainly without recurring to formalised models, it is difficult to build tests which unambiguously identify a particular view. The paper discusses in detail several empirical failures, and a limited number of strong results. Finally, some suggestions for re-addressing empirical investigation are given.

Corporate refocusing in the UK : an empirical investigation

Abstract: It has been widely suggested that since the early 1980s the trend towards ever greater corporate diversification has been reversed in many mature economies; with many diversified firms narrowing the scope of their activities by refocusing on what are perceived to be core businesses primarily, though not exclusively, through major divestments. Whilst recent research, largely in the US context, has started to take place on corporate refocusing there is a paucity of evidence on refocusing in the UK. The aim of this thesis is to address this shortcoming and to examine corporate refocusing activity in the UK. This study uses a specially constructed data set compiled from primary and secondary sources, covering 158 publicly quoted companies over the period 1985 to 1993. The thesis initially examines the extent and nature of refocusing activity in the UK. It is found that refocusing activity is undertaken by a substantial majority of the sample firms. Firms refocused primarily by divesting unrelated businesses and acquiring related activities. The thesis proceeds to examine the characteristics of refocusing firms using cross-sectional OLS and logit techniques. It is found that refocusing firms are characterised by high levels of diversification, low levels of management ownership and to a limited extent by an attractive core business on which to refocus. The thesis next examines the determinants of firms' divestment behaviour using both crosssectional and panel data proportions and count data (Poisson and Negative Binomial regressions) techniques. The results indicate that divestment is a purposeful response to financial, strategic, corporate governance and - to a limited extent - market structure characteristics. In the final part of the thesis, we examine the impact of divestment on firm performance by adopting a dynamic profitability equation augmented with divestment variables. The results suggest that divestment has a positive impact on the profitability of divesting firms. The performance effect is greater for firms operating weak governance mechanisms. It is concluded that corporate refocusing is an important phenomenon in the UK and is not merely an invention of the business press. The determinants of divestment indicate that divestment is not simply a reflection of managerial idiosyncrasies or mean reversion behaviour in the activities undertaken, but a purposeful response to a change in the equilibrium level of diversification. The adoption of a refocusing strategy appears to improve the overall performance of divesting firms.

Corporate Focusing and Internal Capital Markets

Abstract: A sample of firms that focus by divesting at least one segment allows us to investigate the characteristics of segments divested as well as the nature of focusing firms. We find that firms are more likely to divest segments unrelated to the core activities of the firm and that the probability that a segment is divested is inversely related to its relative size within the firm. In fact, a segment's relative size is the variable that has the most explanatory power in predicting which segment a firm divests. We argue that this is consistent with the importance of asset market liquidity as a determinant of the divestiture decision. Financial constraints play an important role in determining which firms focus, which segments these firms divest, and in the market's reaction to divestiture announcements. Focusing firms perform less well and invest significantly less than heir non-focusing counterparts.

The Botswana Development Corporation: Divestiture Policy and Citizen Participation in the Private Sector

Abstract: The Botswana Development Corporation, Botswana's most important agency for industrial and commercial development, assists in the development of viable businesses, with the emphasis on profit‐making and earning acceptable returns on investment. Its policy is to divest from mature and successful ventures, ‐with the aim of raising capital for future investment, encouraging diversification and competition, and promoting citizen participation in private business ventures. The article considers the implementation of the policy with regard to two brewery companies. Its assessment is that the brewery divestments have had a positive but limited effect on economic participation by citizens and it concludes by suggesting policy and strategy reforms that would ensure sustainable private sector development.

The logic and Lure of Acquisitions: A Case Study from the Steel Industry

Abstract: This paper analyzes a recent acquisition decision in the Canadian steel industry Drawing on interviews with participants in the decision process, the writer explores the roles of technological, psychological, life-stage, and cultural factors in the acquisition and its subsequent divestment

Privatisation of a municipal enterprise through competitive sale: The case of Metro Gas

Abstract: The situation of Metro Gas, owned and operated by the Greater Johannesburg Metropolitan Council (GJMC), is an almost textbook example of the need for straightforward government divestiture of an enterprise. In late 1998, the GJMC took a decision to solicit bids for the 100 per cent sale of the assets and business of Metro Gas as a going concern. Privatisation, involving the complete, permanent alienation of governmental assets, is often viewed as the most extreme and controversial form of public‐private partnership. This is particularly the case in South Africa, where some stakeholders view privatisation as an unacceptable retreat from the challenges inherent in restructuring municipal service provision. This article reviews the decision process leading up to the sale of Metro Gas. This is an ideal example of the circumstances and conditions under which such privatisation activities are appropriate and worthwhile at the local level.

Selling Elk Hills: The Political Economy of US Federal Divestment

Abstract: With a newly elected Congress in 1995, the United States government (USG) began to face a family of questions sun ounding the possible sale of its largest and most profitable asset the giant oil and gas field, Elk Hills, or Naval Petroleum Reserve No 1. Discovered nearly 90 years ago, it became a Federal Reserve by Executive Order of the President in 1912. The fourth largest of some 278 fields in California, and producing over 1.4 billion barrels of oil (energy equivalent for both oil and natural gas) per annum by 1998, it was originally set aside both to protect the resource and to establish a strategic reserve for the US Navy. Although highly productive in the recent past, it was seen by both the USG's industry partner and the Congress as likely to become less profitable as its production declined and costs increased. The industry partner was the private sector oil corporation, Chevron USA, which by 1976 owned an undivided 22 percent interest in the field. Several public institutions were involved in evaluating and creating a future for Elk Hills:

Getting Over by Reaching Out: Lessons from the Divestment And Krugerrand Campaigns

Abstract: (1999). Getting Over by Reaching Out: Lessons from the Divestment And Krugerrand Campaigns. The Black Scholar: Vol. 29, African Initiatives, pp. 2-19.

The entry mode choice of EU leading companies (1987-1997)

Abstract: The aim of the paper is to provide empirical evidence on the relationship between industrial structure and M&A process. We focus on the determining factors fostering a firm to choose controlling acquisitions or non-controlling ones. We use the Acquisitions and Divestments Database (ADD), a data-base collecting equity operations made by top-90 EU leaders in the period 1987-1997. A logit analysis shows some variables that increase the probability that the firm’s entry mode choice is a non-controlling-acquisition: firm’s size, firm’s diversification strategy, industry concentration, oligopolistic competition. On the contrary, the R&D differentiated industries and the role of the stock exchange market enforce the probability that the firm’s entry mode is a controlling acquisition.

Enterprises in a Transitional Economy. Divestiture and Adjustment

Abstract: Massive privatisation in Russia moved a substantial proportion of former state properties into the hands of private economic agents (especially in the public catering, personal services, trade, and construction sectors), produced a corporate sector in the economy, and triggered the development of a securities market. The establishment of ownership rights and the more efficient operation of new legal entities have been one of the main consequences of reforms. Apart from the transformation of former state units into joint-stock companies (JSCs), the need to survive in a transitional environment is also forcing companies to transform the structure of properties themselves. Recently privatised enterprises began buying the sites they occupy — a natural continuation of the divestiture and privatisation process.

The Development of Equity Capital Markets in Transition Economies: Privatisation and Shareholder Rights

Abstract: The thesis focuses on two issues that have arisen during the development of equity capital markets in transition economies. First, it has typically been observed that the divestiture of state assets in Russia has not been implemented comprehensively. Following an introductory chapter, the second chapter develops a model to explain this observation in an environment where the objective of the state is to maximize revenues from the sale of its shares on the equity capital markets. If the state has private information about the future macroeconomic environment or about potential improvements of the firms' qualities due to improved corporate governance it can signal its private information to investors. This can be achieved by choosing a percentage of the state's shareholdings to be held back from the immediate sales. A second issue which has typically slowed down the development of capital equity markets in transition economies has been the violation of shareholder rights. Governments have often not guaranteed such rights. However, management might have incentives to introduce shareholder rights voluntarily. The third chapter develops a simple static framework to think about the issue of shareholder rights and tests some of its predictions. The chapter presents evidence from a sample of the 140 largest Russian joint stock companies. Only a minority of firms in this sample do honour shareholder rights and the chapter analyzes which firms are more likely to do that. It turns out that large firms are more likely to introduce shareholder rights, possibly because the expected value of stealing profits is smaller. Furthermore, there is some evidence that large outside blockholders, as well as the state in its role as shareholder, are able to press for shareholder rights. The fourth chapter develops a dynamic model for the introduction of shareholder rights where the firm's ownership is endogenised. The chapter shows that in the short nm, management might be willing to introduce shareholder rights in case it has received a sufficiently large portion of the firm's voting shares in the privatization process. In the long term, more firms will introduce such rights, but only after they have stolen a sufficient part of the firms profits to build up a large equity stake.