The economics of parent-subsidiary mergers: an empirical analysis

We examine parent-subsidiary mergers, transactions that do not entail arm's length bargaining or a change in control. These mergers are typically followed by considerable restructuring of subsidiaries. Minority and parent returns are not significantly different from returns at third party buyouts of parent-controlled subsidiaries, transactions that entail arm's length negotiations and a change in control. Buyer returns an negative, consistent with overbidding. We conclude that parent-subsidiary mergers facilitate corporate restructuring, foster the reallocation of resources toward higher valued uses, and increase value for both parent and subsidiary. (C) 1998 Elsevier Science S.A. All rights reserved.