Long-run performance of corporate spin-offs and sell-offs: Evidence from the JSE limited

Abstract

According to Hagel III and Singer (2000), corporate unbundling is a process of breaking up a large business into its smaller components. Similarly, Moschieri and Mair (2005) defines corporate unbundling as an operation where the parent corporation initiates an action of disposing of and selling assets, facilities, product lines, subsidiaries, divisions or business units. Generally, unbundling has not been very common in South Africa. However, the few corporations that have undertaken the strategy have focused more on spin-offs and sell-offs. A spin-off is a pro-rata distribution of the shares of a firm’s subsidiary to the shareholders of the firm and after the distribution the operations and management of the subsidiary are separated from those of the parent (Bhana 2004). In contrast, a sell-off involves the disposal of divisions, business units, product lines or subsidiaries to other firms in exchange for cash (Menon et al. 2004).