The Art of Capital Restructuring: Creating Shareholder Value through Mergers and Acquisitions

CHAPTER 29

Partial Acquisitions: Motivation and Consequences on Firm Performance

PENGCHENG ZHU

Assistant Professor of Finance, University of the Pacific

SHANTANU DUTTA

Assistant Professor of Finance, University of Ontario Institute of Technology

INTRODUCTION

During the last few decades, corporate merger and acquisition (M&A) activities has experienced a tremendous increase along with academic interest in studying the topic. Based on the Security Data Corporation (SDC) Platinum database, the worldwide M&A transaction value increased 10 times from about US$280 billion in 1990 to about US$2.7 trillion in 2007. The number of deals also rose from about 4,000 in 1990 to 17,000 completed transactions in 2007. Most studies focus on complete acquisitions in which the acquiring firm buys majority ownership in the target firm, resulting in the delisting of the target firm from the public market. Yet, researchers have paid less attention to partial acquisitions despite their importance. The purpose of this chapter is to provide a review of some major studies on partial acquisitions and to summarize the key findings in the literature.

Partial acquisitions are corporate ownership transactions in which the acquiring firm only acquires part ownership of the target firm. The target firm thus remains an independent entity in the public market. Researchers use different criteria to define partial acquisitions. Some studies such as Choi (1991) and Akhigbe, Martin, and Whyte (2007) only consider the ...