The relationship between divestitures and acquisitions is generally presented in three ways: to free up resources for future acquisitions, to remove redundant parts of a previously acquired firm, or due to underperformance of the combined firm. We propose an additional relationship: if an announced acquisition fails to close, the bidder may pivot to divest resources related to the target firm, particularly when the bidder lacks keystone resources—critical assets that are essential to unlock the value of other resources held by the bidder—that would have been gained through the acquisition. To test this relationship, we augment previous methodological approaches with a novel method: matching successful and unsuccessful bids using the perceived risk of deal failure by using arbitrage spreads between the announced and spot prices of the target. Consistent with this argument, we find that bidding firms are more likely to make divestitures in sectors related to the target after a failed bid, and this effect is amplified under specific conditions: when the target’s resources are highly complementary to the bidder’s, when the target initiates the termination, when the bidder’s stranded assets have a high opportunity cost, and when the focal business is distant from the bidder’s core operations. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2024.0320 .
Gibbs et al. (Mon,) studied this question.