The two stages of an equity carve‐out and the price response of parent and subsidiary stock

This paper provides evidence that an equity carve‐out is usually the first stage of a two‐stage process either to dispose of parent interest in a subsidiary or eventually re‐acquire the subsidiary's publicly traded snares. Both the initial carve‐out announcement and subsequent sell‐off announcement yield, on average, significantly positive abnormal returns to parent shareholders. In contrast, the parent's price response to a re‐acquisition of subsidiary shares is, on average, insignificantly positive. Both sell‐off and re‐acquisition announcements have a strong positive impact on subsidiary share prices. These gains, however, are offset by the subsidiaries' below‐average return performance preceding the second event.