Rearranging Residual Claims: A Case for Targeted Stock

Abstract

This paper describes and analyzes a relatively new method of equity-based restructuring, Targeted Stock. We examine announcement period share price reactions for completed, pending, and canceled offerings. Although the total number of completed transactions to date is small, we document a positive share price reaction on average for this form of equity reorganization. We then compare and contrast Targeted Stock with alternative equity reorganization forms, including spin-offs, equity carve-outs, and dual class common stock. We argue that Targeted Stock is most useful for firms in which the benefits of integration and control over corporate operating and financing activities outweigh the benefits of a complete or partial separation of the targeted business unit(s).

JEL Classification: G32, G34