i | P a g e  
 

                                                                                

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARE PRICE REACTION TO UNBUNDLING ANNOUNCEMENTS – 

INVESTIGATION OF JSE LISTED COMPANIES  

 

50% Research in M.Com Business Finance  

 

by 

 

 

SHERENE ANN LAHOUD  

558496 

 

 

MASTER OF COMMERCE (FINANCE) 

 

in the 

 

SCHOOL OF ECONOMIC AND BUSINESS SCIENCES 

 

at the 

 

UNIVERSITY OF THE WITWATERSRAND, JOHANNESBURG  

 

 

Supervisor: MR J. BRITTEN  

 

 

Date of submission: 22.11.2021 

 
 

 



ii | P a g e  
 

22.11.2021 

SCHOOL OF ECONOMIC AND 

BUSINESS SCIENCES 
 

 

Declaration Regarding Plagiarism 

 

  
 

I (full names & surname): Sherene Ann Lahoud  

Student number: 558496 

 

 

Declare the following: 

1. I understand what plagiarism entails and am aware of the University’s policy in this 

regard. 

2. I declare that this assignment is my own, original work. Where someone else’s work 

was used (whether from a printed source, the Internet or any other source) due 

acknowledgement was given and reference was made according to departmental 

requirements. 

3. I did not copy and paste any information directly from an electronic source (e.g., a web 

page, electronic journal article or CD ROM) into this document. 

4. I did not make use of another student’s previous work and submitted it as my own. 

5. I did not allow and will not allow anyone to copy my work with the intention of 

presenting it as his/her own work. 

 

   

Signature                                                                          Date 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



iii | P a g e  
 

ABSTRACT  

 

This paper examines the market reaction to unbundling announcements of JSE listed firms over 

the period  2000 to 2020. This research aims to improve on and add to existing literature by 

comparing the companies in terms of two subsets based on size and to see which yields better 

performance. The final sample used was made up of 29 parent firms and 14 spin-off firms listed 

on the JSE.  

An event study methodology is adopted examining the abnormal returns of the parent firms 

over an eleven day event window. The abnormal returns for the spin-off firms are assessed 

over a five-day period post the announcement date. The results in this research examine the 

market reaction to unbundling and are contrasted with international studies aligned to literature 

relating to share price performance. Financial ratios are assessed to understand how the value 

of the firm has been favorable or unfavorable over the event window chosen and sample of 

parent firms. No significant results and differences in the average abnormal returns are found 

pre and post the unbundling transactions.  

Corporate and capital market discussions are addressed and the results are surprising as one 

expects better performance to be examined post an unbundling transaction. However, further 

research can be done extending the event window to address the debate of long term 

performance. This will confirm the impact on share price reactions to the market and overall 

performance of the firms. The results found in this research report may be owing to the lack of 

sophistication to enable the financial activities to be performance and/or value enhancing 

mechanisms for South African firms. 

Overall, this research demonstrates how corporate actions end up underperforming similarly to 

M&A synergies as a whole but still presents value adding results.  

 

 

 

 

 

 



iv | P a g e  
 

ACKNOWLEDGEMENTS  

The completion of my research report would not be final without expressing my sincere thanks 

and gratitude to the following people; Mr. James Britten, my supervisor, for his continuous 

patience, guidance, motivation, encouragement and abundance of knowledge. Not only has Mr. 

Britten been my supervisor but has stepped in as my mentor and encouraged me to persevere 

and reach the end. He has been a continuous support through my final years of my 

undergraduate and both postgraduate studies; Honours and Masters and for that I am truly 

grateful. I owe thanks to Professor Christo Auret who was my initial motivator and encouraged 

me to return to the University of the Witwatersrand and pursue Masters (Finance). I am grateful 

to have been lectured and mentored by a Professor so well versed and experienced in this field 

and carefully guided and supported by him over the years of completing my studies. My sincere 

thanks also goes to all the lecturers who have made an impact in my studies to date at the 

School of Economic and Business Sciences; Dr. Daniel Page, Dr. Yudhvir Seetharam, Mr. 

David McClelland, Professor Robert Vivian, Professor Greg Farrell, Professor Manoel 

Bittencourt and Mr. James Bernstein. My academic career would have not been possible to 

reach this point without the support from my family who are my most valued and dedicated 

Team in my life. Finally, I would like to thank Dr. Daniel Page for his assistance to obtain 

relevant data and Vulthari Shirley Mabasa from First Avenue Investment Management for her 

continuous support and assistance in obtaining data for the purpose of this research report.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 



v | P a g e  
 

Contents 
1. Introduction ........................................................................................................................................ 1 

1.1 Corporate Unbundling ............................................................................................................ 1 

1.2 Research Overview ....................................................................................................................... 2 

1.3 Contributions of the Study ............................................................................................................ 3 

2. Literature Review ............................................................................................................................... 4 

2.1 Unbundling Defined ...................................................................................................................... 4 

2.2 Reasons for Unbundling and Subsequent Performance ................................................................ 5 

2.3 The South African Experience of Unbundling .............................................................................. 7 

2.4 The International Experience of Unbundling ............................................................................... 8 

3. Research Methodology ....................................................................................................................... 9 

3.1 Introduction................................................................................................................................... 9 

3.2 Sample Statistics ......................................................................................................................... 10 

3.2.1 Sample and Sampling Methods ................................................................................................ 10 

3.2.2 Procedure for Data Collection ................................................................................................ 11 

3.2.3 Event Study and Test Period .................................................................................................... 12 

3.3 Research Design ......................................................................................................................... 12 

3.3.1 Stock Market Performance....................................................................................................... 12 

3.3.2 Financial Ratio Analysis .......................................................................................................... 15 

3.3.3 Parameter Estimates ................................................................................................................ 16 

4. Empirical Results ............................................................................................................................. 17 

4.1 Return Analysis ........................................................................................................................... 18 

4.1.1 Stock Market Performance – Parent Firms ............................................................................. 18 

4.2 Fundamental Analysis ................................................................................................................. 25 

Section 1: Overall Trend Analysis ................................................................................................... 27 

Liquidity Ratios ................................................................................................................................ 27 

4.2.1 Current Ratio (CR) .................................................................................................................. 27 

Debt Management Ratios ................................................................................................................. 27 

4.2.2 Debt-to-Equity (DTE) .............................................................................................................. 27 

Profitability Ratios ........................................................................................................................... 28 

4.2.3 Return on Assets (ROA) ........................................................................................................... 28 

4.2.4 Return on Equity (ROE) ........................................................................................................... 28 

Market Performance ........................................................................................................................ 29 

4.2.5 Price-to-Earnings (P/E) ........................................................................................................... 29 

Section 2: Firm Split ........................................................................................................................ 30 

High versus Low ROA and ROA firms ........................................................................................... 30 



vi | P a g e  
 

4.2.6 Parent Firms - High & Low ROA ............................................................................................ 30 

4.2.7 Parent Firms - High & Low ROE ............................................................................................ 31 

Section 3: Spin-Off Firms ................................................................................................................ 32 

Spin-Off Firms ................................................................................................................................. 32 

5. Discussion of Results ....................................................................................................................... 33 

5.1 Return Analysis ........................................................................................................................... 33 

5.2 Fundamental Analysis ................................................................................................................. 34 

5.4 Overall ........................................................................................................................................ 36 

6. Conclusion ........................................................................................................................................ 38 

7. References ........................................................................................................................................ 40 

8. Appendices ........................................................................................................................................ 44 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



vii | P a g e  
 

 

LIST OF FIGURES  

 

Figure 1: Actual return (Raw returns) (T= 0) to (T= -95) ...................................................... 23 

Figure 2: Actual returns (Raw returns) (T= -5) to (T= 5) ....................................................... 23 

Figure 3: Average abnormal returns (T= -5) to (T= 5) ........................................................... 24 

Figure 4: Average abnormal returns (T= -5) to (T= 5) ........................................................... 24 

Figure 5: Cumulative abnormal returns (T= -5) to (T= 5)  ..................................................... 25 

Figure 6: Summary of all companies included based on the announcement period ............... 26 

 

LIST OF TABLES  

 

Table 1: Summary of Financial Ratio Analysis and Assessment Criteria .............................. 11 

Table 2: Financial Ratio Analysis and Assessment Criteria ................................................... 15 

Table 3: Summary of Parent firms by sector, size and descriptive statistics .......................... 18 

Table 4: Statistical differences in average abnormal return (Sample paired t-test) – Grouped

.................................................................................................................................................. 19 

Table 5: Statistical differences in average abnormal return (Wilcoxon-Signed Rank test) 

(Grouped) ................................................................................................................................. 20 

Table 6: Sample paired t-test for statistical differences in average abnormal return (Big) .... 20 

Table 7: Sample parried t-test for statistical differences in average abnormal return (Small) 21 

Table 8: Wilcoxon-Signed Rank test for statistical differences in average abnormal return 

(Grouped) ................................................................................................................................. 21 

Table 9: Wilcoxon-Signed Rank test for statistical differences in average abnormal return 

(Big) ......................................................................................................................................... 22 

Table 10: Wilcoxon-Signed Rank test for statistical differences in average abnormal return 

(Small)...................................................................................................................................... 22 

Table 11: Announcement Analysis period and number of firms per year .............................. 26 

Table 12: Summary of Parent Firms and size ranking based on ROA and ROE ................... 30 

Table 13: Statistical significance tests for average abnormal returns (high and low ranked 

ROA parent firms) ................................................................................................................... 31 

Table 14: Statistical significance tests for average abnormal returns (high and low ranked 

ROE parent firms) .................................................................................................................... 31 

Table 15: Summary of Sample of Spin off Firms and AARs , based on CAPM and 3-Factor 

Model ....................................................................................................................................... 32 



viii | P a g e  
 

Table 16: Summary of Sample of Spin off Firms and CAARs , based on CAPM and 3-Factor 

Model ....................................................................................................................................... 33 

 

Table A- 1: Summary of Parent firms by sector and size ....................................................... 44 

Table A- 2: Parent Firms based on size using Percentiles ...................................................... 45 

Table A- 3: AARs (Parent Firms) based on CAPM and three factor model  prior to the 

announcement .......................................................................................................................... 46 

Table A- 4: AARs (Parent Firms) based on CAPM and three factor model  post the 

announcement .......................................................................................................................... 47 

Table A- 5: CAARs (Parent Firms) based on CAPM and three factor model  prior to the 

announcement .......................................................................................................................... 48 

Table A- 6: CAARs (Parent Firms) based on CAPM and three factor model post the 

announcement .......................................................................................................................... 49 

Table A- 7: Parent Firms Values for Average Abnormal Returns Prior to the announcement 

date based on the CAPM and 3-Factor Model calculations for High and Low ROE firms .... 50 

Table A- 8: Parent Firms Values for Average Abnormal Returns Post the announcement date 

based on the CAPM and 3-Factor Model calculations for High and Low ROE firms ............ 51 

Table A- 9:  Parent Firms Values for Cumulative Average Abnormal Returns Prior to the 

announcement date based on the CAPM and 3-Factor Model calculations for High and Low 

ROE firms ................................................................................................................................ 52 

Table A- 10: Parent Firms Values for Cumulative Average Abnormal Returns Post the 

announcement date based on the CAPM and 3-Factor Model calculations for High and Low 

ROE firms ................................................................................................................................ 53 

Table A- 11:Actual (Raw) Returns (All Parent Firms) based on CAPM and three factor 

model prior to and post the announcement .............................................................................. 54 

Table A- 12: AARs (All Parent Firms) based on CAPM and three factor model prior to and 

post the announcement ............................................................................................................. 54 

Table A- 13: CARs (All Parent Firms) based on CAPM and three factor model prior to and 

post the announcement ............................................................................................................. 54 

 

Table B- 1: Full sample AAR  of parent firms t-test (Sample paired t test) 55 

Table B- 2: Full sample AAR  of parent firms t-test (Wilcoxon Signed Ranked Test) .......... 55 

Table B- 3: AAR before distribution for sample of High ROA parent  firms versus sample of 

Low ROA parent firms t test (Wilcoxon Signed Rank Test) ................................................... 56 



ix | P a g e  
 

Table B- 4: AAR after distribution for sample of High ROA parent firms versus sample of 

Low ROA parent firms t test (Wilcoxon Signed Rank Test) ................................................... 56 

Table B- 5: AAR before and after distribution for sample of High ROA parent firms t test 

(Sample paired t test) ............................................................................................................... 56 

Table B- 6: AAR before and after distribution for sample of High ROA parent firms t test 

(Wilcoxon Signed Ranked Test) .............................................................................................. 57 

Table B- 7: AAR before and after distribution for sample of Low ROA parent firms t test 

(Sample paired t test) ............................................................................................................... 57 

Table B- 8: AAR before and after distribution for sample of Low ROA parent firms t test 

(Wilcoxon Signed Ranked Test) .............................................................................................. 57 

Table B- 9: AAR before distribution for sample of High ROE parent firms versus sample of 

Low ROE parent firms t test (Wilcoxon Signed Rank Test) ................................................... 58 

Table B- 10: AAR after distribution for sample of High ROE parent firms versus sample of 

Low ROE parent firms t test (Wilcoxon Signed Rank Test) ................................................... 58 

Table B- 11: AAR before and after distribution for sample of High ROE parent firms t test 

(Sample paired t test) ............................................................................................................... 58 

Table B- 12: AAR before and after distribution for sample of High ROE parent firms t test 

(Wilcoxon Signed Ranked Test) .............................................................................................. 59 

Table B- 13: AAR before and after distribution for sample of Low ROE parent firms t test 

(Sample paired t test) ............................................................................................................... 59 

Table B- 14: AAR before and after distribution for sample of Low ROE parent firms t test 

(Wilcoxon Signed Ranked Test) .............................................................................................. 59 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



1 | P a g e  
 

1.   Introduction  

1.1 Corporate Unbundling  

The study of firms engaging in unbundling transactions is an interesting discussion point in the 

field of Corporate Finance. Other areas in Corporate Finance can be examined including the 

assessment of  strategies such as Merger and Acquisitions (M&A). It is important to note the 

topic of M&A is not the focus of this research. South African literature is a good example of 

findings which show the impact of unbundling transactions pre- and post- the announcement. 

This is based on the share price performance and the choices firms will make to achieve 

improved performance post the announcement of these transactions (Miles & Rosend, 1983;  

Hite & Owers, 1983; Blount and Davidson, 1996 and Veld & Veld- Merkoulova, 2004). Other 

explanations to describe this financial activity are referred to as either a spin-off or sell-off 

(Rossouw, 1997 and Bhana, 2006). 

This study revisits and updates the work of Blount and Davidson (1996) using a different 

sample but similar approach. The key focus is to examine the relationship between the market 

reaction and subsequent performance of the unbundled transactions. This is achieved by 

assessing the share price performance against the return benchmark. Furthermore, the size 

factor is incorporated and the results are analysed to conclude if a relationship between size 

and performance is found on the basis of assessing whether the outcome of returns is positive 

or negative. The research assess whether or not the work of Blount and Davidson (1996) is still 

relevant and if incorporating other factors such as size adjusts the outcome of the study. 

Furthermore, the question of whether or not the results resemble past literature put forward has 

been detailed and reviewed throughout this research.   

The purpose is achieved by reviewing the performance of firms following the unbundling 

transaction over a twenty-year sample of unbundling transactions. This is done over an 

evaluation window of eleven days pre- and post- the unbundling transaction. Contributions to 

the theory of unbundling and examining performance through the analysis of share price returns 

and chosen ratios is examined. The sample of firms will first be grouped by size based on the 

respective market capitalizations and this describes how size will be defined for the purpose of 

this research. This is done by applying the 33rd and 66th Percentile and two groups will be 

determined (small and big, respectively). This highlights that the focus is on the differential 

performance based on size and will address if size does play a role in unbundling transactions 



2 | P a g e  
 

and whether the size of the transaction influences the probability of success. Ultimately, to 

assess if there is an impact on the performance of the firms post an unbundling transaction.  

A comparative analysis will be completed in order to conclude how and if these financial ratios 

improve an unbundling. The ratios covered will cover the following categories and be 

discussed in more detail; Liquidity, Solvency, Profitability, Activity and Market Performance. 

To assess significance the time series t-statistics for various intervals and abnormal returns will 

be examined. To achieve this both parametric and non-parametric methods will be adopted 

such as; Sample Paired t-test and Wilcoxon-Signed Rank test, respectively. This will be applied 

pre- and post- the announcement of the unbundling transaction and the p-value will be 

commented on.  

Ratio Category Financial Ratio 

1. Liquidity  Current Ratio (CR)  

2. Solvency  
Debt to Equity (DER) 

Debt to Assets (DTA) 

3. Profitability  
Net Profit Margin (ROE)  

Return on Assets (ROA)  

4. Activity  Total Assets Turnover (TATO)  

5. Market Performance  Price Earnings Ratio (PER)  

 

As this research revisits the work of Blount and Davidson (1996) in the same way the work of 

Nurfauziah and Ainy (2018) is addressed and similarly examines ratios using the parent sample 

over an event window of one and three years pre- and post - the announcement and conclusions 

are drawn on and presented in the findings. It is not expected that these ratios will result in 

statistical differences in the financial performance pre- and post- unbundling transactions. 

Furthermore, this will address the question of whether or not unbundling transactions have 

been able to achieve the desired financial synergies which M&A have not according to 

Khusniah (2012). 

1.2 Research Overview  

This research specifically examines whether or not the size of a firm will impact the subsequent 

performance of corporate unbundling announcements thus the results post an unbundling are 

examined.   

To address the size related analysis the following questions will be asked; 1. Where have 

unbundled transactions been the most successful based on subsequent performance? The 

assessment is based on which sized firm has best performed based on the following; (a) price 



3 | P a g e  
 

performance and (b) ratio analysis and 2. Is it possible for a certain sized firm to outperform a 

benchmark but underperform the market? The primary hypotheses to be reviewed are as 

follows;  

H0: There is no difference in size of the unbundled transaction.  

HA: There is a difference in the size of the unbundled transaction. 

This research adds to our understanding of unbundling by presenting the case of unbundling  

in line with the relevant finance literature. Through the application of the analysis tools chosen 

this will assist with examining which sized firms are the most successful based on subsequent 

performance for the chosen sample.  

1.3 Contributions of the Study   

Castle and Kantor (2000) and Gostner (2002)  explain that historically the JSE was dominated 

by conglomerates. As a result the South African listed corporations had limited alternative 

options due to isolation, sanctions and strict exchange control policies. Gostner (2000) explains 

this is why the alternative on the JSE was M&A and thus owing to the extensive resources 

available to gain a broad understanding on this topic. Similarly, Nkongho (2018) explains 

South Africa has set out a more developed “corporate landscape” such that the South African 

market has taken on similar approaches which are being done by the more developed countries 

(unbundling activities). Gencor in 1993 is a perfect example of the above where the company 

engaged in a spin-off and divided into five different and independent firms (Ferreira,1997).  

Therefore, development of this research is of importance to be able to gain a concrete 

understanding in line with the performance of spin-offs and how they are contributing (value) 

to the market. The results of this study indeed will be of use to investors to identify with 

performance associated with unbundling transactions based on the defined industries. In saying 

this, investors seek to understand what will drive value and ultimately create the best outcome 

when evaluating corporate restructurings. It would be an “ideal outcome” to have all 

knowledge on what will drive the unbundling transaction positively and thus will influence the 

firm performance and assist managers to make the best business decision for the company.   

Globalisation and the impact of democracy has indeed contributed to the change in the attitude 

of how unbundling transactions have been viewed in South Africa. This has positively 

impacted the understandings behind unbundling transactions and are now more aligned to the 

rest of the world (Kantor, 2001). Over time, further literature has been presented and Bhana 



4 | P a g e  
 

(2004) evidenced a more detailed study showing this change. This is owing to democracy in 

South Africa and  the resultant positive reactions found in both the stock market and operating 

performance of firms of parent and spin-offs (Bhana, 2004).   

Research on USA, Europe and Canada presents findings with larger sample sizes in comparison 

to South Africa. Ultimately, the larger the sample size the better the conclusions.  

Diversification is key and at the same time where a number of companies are included this 

allows for essential factors to be realized and presented in the sample. Given the power of 

diversification this will directly remove all outliers and misleading factors resulting in value 

adding results. Finally, the methodology adopted in this study to present the sample is owing 

to the small sample size presented.  

Event studies are based on the assumption of market efficiency but this does not always hold 

true. As a result, the application of the event study is impacted directly depending on how the 

research has been designed. Therefore, should there be any changes this will alter the original 

findings.  

The remaining sections of the research will be presented as follows; six sections will follow 

with the second section addressing prior literature in line with unbundling transactions. The 

research methodology will be examined in the third section followed by the empirical results, 

discussion of all results which have been examined and the final concluding comments in the 

fourth, fifth and sixth section, respectively.   

2. Literature Review 

2.1 Unbundling Defined 

Corporate divestures will take the form of either a spin-off or sell-off (Bhana, 2006). A spin-

off is defined as the breaking up of conglomerates into smaller, independent firms (Rossouw, 

1997, p. 1019–1028).  Examination of corporate unbundling is a dominant interest to corporate 

strategy, finance and organizational scholars and has been addressed by Bowman & Singh 

(1993), Lamont & Polk (2002), Cao, Owen & Yawson (2006), Eckbo &Thorburn (2008), Lee 

& Madhaven (2010) and Jordan (2012). Furthermore, Bhana (2004) refers to an unbundling 

transaction as the distribution of shares of the subsidiary to the shareholders of the parent firm. 

This is understood to be done on a pro rata basis enabling the shareholders to retain the same 

percentage of ownership in both the parent and spin-off firm (Bhana, 2004). Similarly, Hagel 



5 | P a g e  
 

III and Singer (2000) explain corporate unbundling as the process of dividing the larger 

business into smaller components with the aim of  creating shareholder value.  

As mentioned above, the work of Rossouw (1997) and Hagel III and Singer (2000) suggest 

unbundling becomes more popular in instances where corporations are faced with a volume of 

pressure based on decisions to be made for unbundling. As a result well organized firms are 

presented with a multitude of decisions to be made which do present difficulty. Hagel III and 

Singer (2000) raise three key industries presented with making these “hard choices.” These 

include; newspapers, credit cards and pharmaceuticals and as a result key changes are having 

to be addressed and made. Hagel III and Singer (2000) predict that as time goes by so more 

companies will be faced with similar difficult choices to be made for unbundling purposes.   

It is worth noting that in order to grasp the true potential therefore managers of large 

corporations should address the advantages of unbundling which will assist with understanding 

what is best for the business and other stakeholders (Cao, Owen & Yawson, 2010; Zhao, 

Michalisin & Stubbart, 2011; Moschieri & Mari , 2008; Hagel III & Singer, 2000 and Bowman 

& Singh, 1993). Corporate Mergers, acquisitions, and corporate restructurings (Gaughan , 

2007) is a presentation of international literature and   addresses a full scope of M&A including 

an entire section on corporate restructuring and the impact on the international market. This is 

discussed in further detail in section 2.2. and 2.4 

Concluding comments are noted from the work of Bhana (2006) and Krishnaswami and 

Subramaniam (1999). Bhana (2006) touches on sell-off transactions and it is understood this 

results when firms sell part of its assets to another firm – often this is limited to either a few 

divisions or business units. Even though the transactions are engaged for similar reasons the 

spin-off transaction does not result in cash flow for the firm. For this reason, spin-offs are 

undertaken for firms which are performing well. Similarly, Krishnaswami and Subramaniam 

(1999) explain firms with a higher propensity to engage in unbundling transactions are the 

firms with higher growth opportunities and less generated capital. Overall, it is clear that based 

on these observations sell-offs would most probably be executed by firms which aim to 

improve their performance.  

2.2 Reasons for Unbundling and Subsequent Performance  

Unbundling has been viewed based on value maximization (Miles and Rosend, 1983) and 

understood in line with the theory of capital markets (Blount and Davidson, 1996). The general 

understanding of engaging in the activity of unbundling is to create shareholders wealth 



6 | P a g e  
 

including other reasons such as; improvement in business focus, elimination of negative 

synergies, tax and regulatory advantages (Nkongho, 2018).  

Blount and Davidson (1996) take a different approach with the application of capital markets. 

Both an internal and external view are examined to determine how the announcement of 

restructuring are impacted for both a parent and spin-off firm. Internally, the benefits of being 

part of the larger firms are felt whereas, externally the impact is felt when assessing during the 

period pre-democratization based on the South African stock exchange. This is due to the lack 

of a developed outcome in comparison to other countries and the lack thereof to perform 

successful unbundling transactions.  

To further understand corporate restructurings it is of value to explore the work of  M&A. 

Focus is placed on corporate expansion and pressure felt by these companies into entering an 

agreement to cut down their activities and operating scope. These decisions are made, but not 

limited to, the following; A part of the company is facing poor performance or the operations 

of  a particular division of the business are no longer aligned to the entities objectives and 

finally implementing a restructuring may be required to reverse a previous unsuccessful 

corporate activity such as M&A. It is interesting to note that financial pressures are the drivers 

behind sell-offs and that with an increase in such activities this results in a direct increase in 

the number of deals being executed. This is a reflection of the patterns seen in the economy 

which M&A activities present too. This is not only noted in the United States but evident in 

Asia and across Europe. Overall it is evident many sell-offs addressed in literature are driven 

by financial pressures owing to an increase in leverage and weak economic demand (Gaughan, 

2007).    

Pearson (1998) speaks to other reasons and objectives for engaging in corporate activities in 

global businesses. It is important for businesses to constantly evaluate options to unlock value 

and often the reason the businesses have downsized and chosen to focus on their core activity 

(Tanawal & Tumiwa, 2014).  

Nkongho (2018) explains unbundling served the purpose of reducing diversification with an 

increased focus on the following; core competence, response to an error by M&A (reaction to 

correct), resolve internal capital market problems on conglomerates , improve liquidity, seek 

cash or equity, reduce information asymmetry, respond to changes in the corporate 

environment and asses legal strategic and market motives. Chung & Hoag (1990) as cited in 



7 | P a g e  
 

Blount & Davidson (1996) presenting a contrasting view that the reallocation of assets has the 

ability to improve prior conglomerate mergers which are inefficient.  

Based on the above it is clear that the motive behind unbundling transactions was not owing to 

market or business reasons but rather represents the movement away from an efficient 

structure. The way this was understood in the South African market was that companies being 

unbundled were the best parts of their business and as a result there was a lack of support for 

such transactions. In the two sections to follow comments on the experience of unbundling in 

both the South African and International scope are examined.  

2.3 The South African Experience of Unbundling   

Historically, the reason shareholders engaged in unbundling activities was not because of this 

activity being a wealth creator and as a result was not used as the chosen strategy by investors 

pre-democracy in South Africa. Rossouw (1997) depicts this occurrence explaining how 

conglomerates dominated the economic activity in South Africa.  

Based on the work presented by Castle and Kantor (2000) the JSE was predominantly made up 

of conglomerates and the reason behind the pre-democracy occurrence is due to listed 

corporations having few alternatives as a result of isolation, sanctions and strict exchange 

control policies implemented (Gostner,2002).  

Bhana (2000) and Gostner (2002) address the occurrence of unbundling transactions post-

democracy and how the corporations were readmitted to the international markets. As a result 

of the elimination of sanctions these corporations could dispose of non-core assets and operate 

similarly to international firms. As a result of the sanctions present in the South African market 

this lead to local firms being forced to acquire more business and directly increased 

diversification within the borders of the country.  

Blount and Davidson (1996) noted more dominant shareholders retained majority of the votes 

regardless of holding a substantial portion of the underlying equity. At this point in time, Blount 

and Davidson (1996) note the ownership style of South Africa does differ from what is found 

in the United States and the United Kingdom. 

Given the platform offered by South Africa for the corporations to unbundle and expand 

internationally the results show firms maximizing their resources and becoming dual listed. 

This meaning the global firms would now have the opportunity to focus more on acquiring 

overseas capital for resident investments (Jordan, 2012). In light of the criticism put forward 



8 | P a g e  
 

on dual listings many businesses are making use of this activity to overcome certain 

government policies in South Africa, for example, proposed nationalization of South African 

mines (Nkongho, 2018). It has been understood that the decisions made by the African National 

Congress (ANC) Government to implement unbundling as a strategy for restructuring in South 

Africa which was largely flawed resulted in an occurrence which became viewed as politicized 

(Rossouw,1997). Indeed Bhana (2006) notes that Black Economic Empowerment (BEE) has 

contributed to the spike in the increasing unbundling activities and to understand unbundling 

is rather the reaction to the outcome and legislation implemented. This has been achieved 

through the operational outcome of the BEE codes and in turn enabling operations to gain BEE 

ownership recognition through the disposal of businesses and assets. This has allowed local 

conglomerates to engage in the disposal of their non-core assets and simultaneously gain BEE 

points for the better.  

Based on the above, unbundling’s mostly occurred to gain BEE recognition whereas King, 

Coldwell, Joosub, and McClelland (2015) reviewed BEE as a hindrance to the South African 

corporate environment and this raises the view that unbundling’s may well be value destroying 

in the South African corporate landscape. In summary, the authors explain that companies are 

faced with limitations and therefore are not able to sell part of their business to respective 

qualifying groups. As a result, prices decline resulting in a direct (negative) impact on the 

unbundling process which is followed by this outcome (King et al. 2015).  

It is evident with the increased number of unbundling transactions over the years it is clear 

there has been a shift in thinking across the South African market.  As mentioned, firms are 

viewing unbundled transactions as a way of improving organization focus and by enabling an 

understanding of inefficient conglomerate structures. Typically, industry managers will 

consider unbundling as an approach to “unlock shareholder value”. This phrase is very 

common to gain interest of shareholders for such transactions.  

2.4 The International Experience of Unbundling  

When examining international studies it is important to contrast with the South African 

development and note that similar changes were taken on by the more developed countries. 

Bhana (2006) suggests that the increase of unbundling transactions is due to the acceptance 

across the restructuring of the corporate landscape.   

Examining the international work produced on unbundling highlights the long term studies 

investigated for a period of at least two-years and more before conclusions have been drawn 



9 | P a g e  
 

on. An exception of the above was the study presented by Nichols, Rosenberg, Majoni and 

Mukanjari (2014) where the study assesses a period of up to two years after the “re-focused” 

event. The understanding behind this was that the firms were meant to experience greater 

positive returns the longer the period of time.  

When reviewing the volume of divestures there was an obvious spike in the value of divestures 

in Europe and Asia in the second half of the fifth merger wave in comparison to the United 

States (Gaughan, 2007).1A decline was recognized for all three countries in the economic 

downturn of 2000-2001 and then there was a gradual increase seen again in 2003 mostly in 

Europe. By the end of 2005 the total value of divestures in Europe was more than that of the 

United States. In comparison to the total number of deals the value in Asia was noted to be 

significantly lower. On the other hand, one can assess the trends in unbundled transactions 

specifically reviewing the United States, Europe and Asia once again. spin-offs did gain 

popularity in the fifth merger wave and were fueled by investors wanting to unlock value in 

the company’s share price (Gaughan, 2007). An interesting overview of spin-offs and the 

occurrence of this corporate activity can be reviewed in more detail in the fourth edition of 

Corporate Mergers, acquisitions, and corporate restructurings (Gaughan , 2007) as explained 

above.  

3. Research Methodology 

3.1 Introduction  

This research aims to improve on and add to existing literature by comparing the companies in 

terms of two subsets based on size and to see which one will yield the better performance.    

The research on one hand assesses the theory and understanding of unbundling and on the other 

reviews the company performance. This is achieved reviewing the stock market performance 

and further reviewing ratios to comment on subsequent performance post the unbundling 

transaction.  

To examine price performance the study accounts for the parent and spin-off firm post an 

unbundling announcement. To examine company performance both return and ratio analysis 

will be applied. It is important to note; the comparative analyses are built on the foundation 

                                                           
1 For a discussion on the different merger waves and for further reading material see: Gaughan, P.A. (2007). Mergers, 

Acquisitions, and Corporate Restructurings. John Wiley & Sons, Inc., 4, 1-639. 



10 | P a g e  
 

that all unbundled transactions have been grouped according to size assessing the respective 

market capitalization values of all firms.   

An event study methodology is used to examine the relationship found between a specific event 

and the subsequent performance which will follow. However, this is only looked at for the 

parent firms. This is similar to the methodology employed by Brown and Warner (1995) and 

is based on the market model. The work of King et.al (2015) is adopted for the purposes of 

presenting a more updated approach and use of literature in this study which is relevant to the 

methodology applied in this Research.  

 3.2 Sample Statistics 

3.2.1 Sample and Sampling Methods 

3.2.1.1 Price Performance  

The sample covers companies listed on the Johannesburg Stock Exchange (JSE) main board 

and includes firms which have strictly encountered restructuring through an unbundling 

transaction in the period 2000-2020.  The sample used in this study was based on the feasibility 

of the data available. Owing to some firms delisting and the lack of historic data certain firms 

were omitted for the purposes of analyzing the results. Therefore, the final sample used was 

made up of 29 parent firms and 14 spin-off firms listed on the JSE. The core focus of this study 

is assessing the performance outcome and how the abnormal returns performed pre and post 

the announcement date for the chosen parent sample.  

It is important to note, in the unique cases where firms conducted more than one spin-off, then 

all transactions were accounted for in the analysis. Blount and Davidson (1996) make use of a  

much smaller sample which mainly accounted for unbundling transactions covered in the “pre-

democratization period.” Based on the scope of research and topic covered; unbundling and 

the data available this is also the reason for why a smaller sample is being used. Therefore, the 

present sample aims to and is expected to produce results which are more aligned to the current 

economic market. In conclusion a total of 14 spin-off transactions were consolidated by the 

corresponding parent firms over a horizon period of 20 years and the event study covered will 

be eleven days (-5,5). Indeed, data restrictions are evidenced in the research and as mentioned 

these are as a result of firms delisting or lack of data being sourced prior to delisting’s, company 

or ticker name changes. Other reasons include the lack of sourcing the historic data based on 

the chosen data platform being used to obtain all data.  



11 | P a g e  
 

3.2.1.2 Financial Ratio Analysis  

When examining Corporate Finance literature and the topic of M&A the most common tool 

are financial ratios. A company’s financial performance is assessed based on the following; 1. 

Liquidity, 2. Solvency, 3. Profitability, 4. Activity and 5. Market Performance. Table 1 below 

summarizes the ratio category and corresponding ratio used to draw conclusions on. For the 

purpose of this research not all ratios were used and this is explained in more detail in the 

sections to follow.   

Table 1: Summary of Financial Ratio Analysis and Assessment Criteria  

Ratio Category Financial Ratio 

1. Liquidity  Current Ratio (CR)  

2. Solvency  
Debt to Equity (DER) 

Debt to Assets (DTA) 

3. Profitability  
Net Profit Margin (ROE)  

Return on Assets (ROA)  

4. Activity  Total Assets Turnover (TATO)  

5. Market Performance  Price Earnings Ratio (PER)  

Source: Nurfauziah et. al (2018).   

 

3.2.2 Procedure for Data Collection  

In order to examine performance, 95 days prior to the announcement of the unbundling 

transaction the daily historical returns are used and the actual returns are calculated using the 

natural logarithm. The annual returns are calculated and the methodology applied by Blount 

and Davidson (1996) is the same as the approach found in both papers discussed; King et. al 

(2015) and Moschieri and Mair (2008). All inputs in this research to calculate the abnormal 

and cumulative abnormal returns were found by obtaining data from the J200 (JSE Top 40 

Index), J202 (small cap index), J203 (used as the All-Share Index (ALSI) and large cap index), 

Both the value (HML) and size factor (SMB) was determined from subtracting the J202 from 

J200. All these inputs assist with building the two chosen models to calculate abnormal returns; 

Capital Asset Pricing Model (CAPM) and to account for robustness the Fama and French three 

factor model was also used. Furthermore, all share price data was obtained from Thompson 

Reuters and ratios were found on IRESS. The study does address these calculations and 

conclusions in detail in the sections to follow. 



12 | P a g e  
 

3.2.3 Event Study and Test Period   

Peterson (1989) explains the event study methodology is directly impacted by the research 

design of a study. Therefore, should there be any changes in parameters this will produce results 

which are different from those originally found.  

The event study looks at estimating the expected return and there are various approaches which 

can be adopted. For the purpose of this research a short term event window mentioned in 

Sitthipongpanich (2011) will be used and is suitable to adopt the market model approach in this 

case. This methodology aggregates the results through Cumulative Average Abnormal Returns 

(CAARs). In contrast, the matching firm technique is more suitable for long event windows 

which is out of scope for this study.  

This study will consider returns over the 95-day period from 90 days prior to the event up to 

the period 5 days after the event (T=-90 to T=5). The estimation window will be from 90 days 

prior to the event up to 5 days before the event (T=-90 to T=-5). There will be two event 

windows: Parent company (T= -5 to T = 5) and Unbundled Transactions  (T=0 to T =5). 

On the other hand, all ratios examined over a period of time (one and then three years) and 

conclusions will be drawn on based on the analysis.  

 

3.3 Research Design   

3.3.1 Stock Market Performance 

In order to gain an understanding on measuring the stock market performance the market model 

is examined. As adopted by Bhana (2006) this study makes use of the market model which 

measures the expected returns for an event study. Following this understanding the Market 

Model looks at the returns on an individual asset in relation to a certain market index and 

including an asset-specific constant. This can be further understood by examining the equation 

and variables. Nkongho (2018) explains this very clearly such that when examining normal 

returns (assuming a market model) this presents the returns based on a specific time under 

normal circumstances in line with the market. In examining the market model it is understood 

that accounting for all factors the only one which determines to the return on stock i at time t, 

is the return on the market at time t. In conclusion the market model depicted as a linear 

(univariate model) equation is as follows; 

  



13 | P a g e  
 

𝑅𝑖𝑡 = 𝛼𝑖 + 𝛽𝑖𝑅𝑚𝑡 + 𝜀𝑖𝑡                                                                                                           (1)                                                                                                                            

Where: 

𝑅𝑖𝑡 = Single-period return on asset i at time t 

𝑅𝑚𝑡 = Return on the market index at time t 

αi and βi = Intercept and slope measures of share i,  respectively (constants) 

𝜀𝑖𝑡 = Error term (a random variable (uncorrelated) with 𝑅𝑚𝑡, with normally distributed returns). 

As described by Fama (1973) this is the Gaussian distribution with zero expected value , 

Nkhnogho (2018).  

Furthermore, the above depicts the univariate model and as described by Fama and French 

(1997) the CAPM is represented as follows; 

𝐸(𝑅)𝑖 = 𝑅𝑓 + 𝛽𝑖[(𝑅𝑚) − 𝑅𝑓] + 𝜀𝑖                                                                                         (2) 

JSE ALSI is used as the market return data and alpha (intercept) was calculated in Microsoft 

Excel using the INTERCEPT function and then used to examine the risk free rate (Simon 

Benninga, 2014).   

The three factor model presents evident improvements in comparison to the CAPM and asset 

pricing model as a whole which was originally presented by Stephen Ross (1976) who 

rightfully introduced the Asset Pricing Theory leading to the initiation of the CAPM model. 

Thereafter, the three factor followed and for the purpose of this research the three factor model 

is used for the purpose of Robustness and to ensure a more improved and accurate result is 

examined (Fama and French 1992,1995). Therefore, for all statistical tests presented both 

abnormal returns are used based on the CAPM and three factor model and feasibility of the 

pricing models.  

The three factor model is best understood as the multivariate model (econometrics depiction);  

𝑌𝑡 = 𝑎1 +  𝑏2𝑋2𝑡+ 𝑏3𝑡+𝑋3 + 𝑒𝑡                                                                                             (3) 

Where: 

𝑌𝑡 = Single-period return on asset i at time t 



14 | P a g e  
 

𝑎1 = Intercept  

𝑏2 = Constant (partial regression coefficient)  

𝑏3 = Constant (partial regression coefficient) 

𝑋2 = Explanatory Variable  

𝑋3 = Explanatory Variable 

𝑒𝑡 = Error term  

Furthermore, the original three factor model in theory and as explained by; Fama and French 

(1993) is understood as follows;  

𝑅 = 𝑎 +  𝑅𝑓 + 𝑏[𝑅𝑀 − 𝑅𝑓] + 𝑠 ∗ 𝑆𝑀𝐵 + ℎ ∗ 𝐻𝑀𝐿 + 𝑒                                                            (4) 

Fama and French (1993) state the expected excess returns  [𝐸(𝑅𝑖 −  𝑅𝑓)] are explained by the 

sensitivity of the following three factors and described below;  

1. [(𝑅𝑖 − 𝑅𝑓] : Excess returns known as the market premium 

2. 𝑆𝑀𝐵: Difference between the small stock portfolio and big stock portfolios, size premium 

3. 𝐻𝑀𝐿: Difference found between the high book to market stock portfolios and the low book 

to market stocks , value premium   

4. 𝑏, 𝑠, ℎ: Premia to the risk factor [𝑅𝑀 − 𝑅𝑓] associated with the factor loadings, SMB and 

HML, respectively  

5. 𝑒: Defined above 

To calculate each of the above factors the following was used; 

Market returns: J203. 

SMB: Small stock portfolio returns calculated from the J202 and big stock portfolio returns 

calculated from J200. 

HML: Value and growth stocks based on JSE listed companies used, subtracted and output 

(Value – Growth) used as HML returns.  

Finally all three factors (market, size and value) were regressed based on multivariate analysis 

assumptions. Making use of the data analysis tool on Excel the statistical output as well as the 

variables (b,s and h) and intercepts were found. The expected returns calculated through the 



15 | P a g e  
 

application of the formula for each respective Parent company was done. All statistical test 

outputs have been summarized in Appendix C.  

3.3.2 Financial Ratio Analysis     

Financial performance can be assessed to understand the effect that the unbundling transaction 

has on the overall value and success of the firm. The ratios used in this study to analyze the 

change in firm value and efficiency of the firms are looked at under specific categories 

following he unbundling transaction and discussed below. The assessments of each ratio are 

based on general standards aligned with the work noted by Correia (2019). 

Table 2: Financial Ratio Analysis and Assessment Criteria  

Ratio Category & Definition Indicators Assessment Criteria “good” or “bad”  

Liquidity - Ability for a firm to 

meet its short-term obligations 

(less than a year) 

Group: Liquidity  

CR = 
Current Assets 

Current Liabilities 
 (5) 1.2 – 2.0 Good  

Higher ratio; better for the firm to meet 

financial obligations  

<1.2 Bad  

Indicates liquidity issues 

= 2 Firm has the ability to cover the current 

liabilities two times over  

Solvency – Ability for a firm to 

meet long term financial 

obligations. 

Group: Debt Management Ratios 

DER = 
Total Debt

Shareholders′Equity 
 (6)  

<1.0 Good 

≥ 2.0  Risky  

< 0 Bad   

 

DTA = 
Total Liabilities 

Total Assets 
 (7)   

0.4 or lower Good  

≥0.6 Bad  

 

 

 

Profitability – Ability for a 

company to generate profit and 

assessment of financial 

performance. 

Group: Profitability Ratios 

ROE = 
Net Income (𝑎𝑛𝑛𝑢𝑎𝑙)

Shareholders′𝐸𝑞𝑢𝑖𝑡𝑦 
 (8) Dependent on industry norm  

≥ Industry Norm: Good  

≤ Industry Norm: Bad  
ROA = 

EBIT

Total Assets 
 (9) 

Activity – Ability of a firm to 

employ capital or assets and  

efficiency measure in terms of 

operational performance (capital 

structure).  

Group: Profitability Ratios 

TATO = 
Net Sales  

Average Total Assets
 (10) Dependent on industry norm  

≥ Industry Norm: Good  

≤ Industry Norm: Bad 



16 | P a g e  
 

Ratio Category & Definition Indicators Assessment Criteria “good” or “bad”  

Market Performance – 

Assessment of whether a 

company’s shares have been over 

or undervalued.  

Group: Market Value Ratios  

P/E = 
Stock Price Per Share   

Earnings Per Share 
 (11) 

P/E = 
Market Capitalization    

Total Net Earnings 
 (12) 

Justified P/E = 
Dividend Payout Ratio

R−G
  *where:                                                                   

R = Required Rate of Return and G 

=Sustainable Growth Rate (13) 

Dependent on industry norm  

Low P/E → undervalued: Good  

High P/E→ generally overvalued: Bad 

 

Source: Correia, C. (2019). Financial Management . Cape Town : Juta . 

In addition the following will also be examined;  

Market Capitalisation (Size) 

Market capitalisation is applied when assessing the aggregate value of the firm and splitting 

parent firms by size based on share price returns. The following factors are accounted for;  

company’s current share price and total number of shares outstanding (Bodie, Kane and 

Marcus, 2013).  

3.3.3 Parameter Estimates 

Normal Returns 

In line with the work of Peterson (1989) normal returns are assessed over an estimated period 

of time rather than the period which occurs immediately before the given event date. 

Furthermore, normal returns are the actual share returns expected to be observed in the case 

where an event is not realized.   

Normal returns will be evaluated for every day in the stated test period. This is possible by 

making use of the below geometric equation;  

𝑅𝑖𝑡 = 𝑙𝑛 (
𝐶𝑙𝑜𝑠𝑒𝑡

𝐶𝑙𝑜𝑠𝑒𝑡−1
)                                                                                                                (14) 

Abnormal Returns (AR) 

Based on the work of Brown and Warner (1980) the authors state that a stock can only be 

considered abnormal relative to a particular benchmark. Therefore,  the difference between the 

observed return and the expected return for the period is deemed to be an abnormal return. 

These returns are a summary of how the actual returns compare against the predicted returns, 

Jordan (2012). The calculation of such returns does form the basis of the event study 



17 | P a g e  
 

methodology and builds the basis of understandings for relevant conclusions to be drawn. The 

abnormal return is given by:  

𝐴𝑅𝑖𝑡 = 𝑅𝑖𝑡 − 𝑅𝑖𝑡∗                                                                                                               (15) 

Where, 𝑅𝑖𝑡 is the return on security i in period t and 𝑅𝑖𝑡∗ is the predicted return on i in period.  

Cumulative Abnormal Returns (CAR)  

Another way of looking at performance of the unbundled transitions is assessing the CARs.  

These returns are defined as the excess returns expected by an investor across a defined event 

window.  The equation is given below and understood as follows; 𝑇1 = the first period in which 

are 𝐴𝑅𝑁𝑡 accumulated and 𝑇2 = the last period in which 𝐴𝑅𝑁𝑡 are accumulated; 

 

∑ 𝐴𝑅𝑁𝑡
𝑇2
𝑡=𝑇1

                                                                                                              (16)  

 

As suggested by Moschieri and Mair (2008) and presented in the work of King et al. (2015)  

CARs for each firm represent the most valued measure in divestment literature. For this reason, 

this is a plausible measure to be adopted in this study. It is important to note and as highlighted 

by Nkhnogho (2018) that average abnormal returns and cumulative average abnormal returns 

are not able to be used alone to present final conclusions. The significance of such returns 

should be determined using a two-tailed t-test and this will finalize all conclusions. Finally,  

given the market model is being applied the CAPM-model will be the appropriate tool to adopt 

for the purposes of this research. However, both the CAPM and three factor model outputs are 

determined in this research.  

4. Empirical Results  

The sections to follow in this Research will cover the following; firstly, the analysis of parent 

firms post an unbundling reviewing the stock market performance of the parent firms. 

Secondly, assessment of the parent firm changes in the value (overall) post the unbundling 

transaction. In both instances the outcomes will be reviewed firstly without factoring in size of 

the firm and then accounting for size and conclusions will be commented on further.  Finally, 

the sample of spin-off firms will be reviewed and commented on but the main focus of this 

research is to focus on the performance and outcome of parent companies post an unbundling 

transaction. 



18 | P a g e  
 

Table 3: Summary of Parent firms by sector, size and descriptive statistics   

Parent Company  Type of Industry  
Size 

Ranking  
R Square (R²) Alpha (α) 

Market Beta 

(βm) 

African Equity 

Empowerment Investments 
Industrials  Small  0.0321 0.0017 -0.5833 

Anglo American  Mining  Large  0.3937 -0.0004 1.1151 

Astrapak Industrials  Small  0.0263 -0.0001 0.2214 

Barloworld Limited  Industrials  Large  0.0317 0.0009 0.2278 

Brimstone Investment 

Corporation 
Industrials  Small  0.0317 0.0009 0.2278 

Control Instruments Group 

Pty Ltd  
Industrials  Small  0.0091 0.0004 0.1373 

Curro 
Business/Educational 

Services  
Small  0.0148 0.0004 0.1943 

FirstRand Limited  Financial Services (Bank)  Large  0.0083 0.0004 0.1367 

Glencore Plc  
Commodity Trading & 

Mining  
Large  0.0231 0.0007 0.5611 

Hosken Consolidated 

Investments Limited  
Industrials  Large  0.0362 -0.0013 0.2464 

Imperial Holdings Limited  Industrials  Small  0.0284 -0.0021 -0.2182 

Kaap Agri Bedryf Food Producers Large  0.0170 -0.0033 0.7414 

Labat Africa Ltd Healthcare  Small  0.0325 0.0073 0.2067 

Mondi Limited Industrials  Small  0.3799 0.0000 0.4800 

Naspers Technology Large  0.0543 0.0004 0.2753 

Naspers Technology Large  0.0543 0.0004 0.2753 

Old Mutual Ltd Financial Services (Bank)  Large  0.0280 -0.0022 -0.8554 

Peregrine Holdings Ltd.  Financials Small  0.0280 -0.0022 -0.8554 

PSG Group Financials  Large  0.0062 -0.0055 -0.0079 

Remgro Limited  Industrials  Large  0.0762 -0.0027 -0.2806 

RMB Holdings Limited Financial Services (Bank)  Large  0.0329 0.0008 -0.2167 

Steinhoff International 

Holdings 
General Retailers  Large  0.0802 -0.0012 -0.8739 

Telkom SA Limited  Telecommunications  Large  0.0146 -0.0051 0.3630 

Tiger Brands Limited  Consumer Goods  Large  0.0306 0.0000 -0.2429 

UCS - UCS Group Limited Healthcare  Small  0.0129 -0.0095 0.5157 

Source: Authors own estimate 

 

4.1 Return Analysis  

4.1.1 Stock Market Performance – Parent Firms  

The abnormal returns were calculated using the CAPM and three Factor model. The average 

abnormal returns were then calculated and the statistical test; Sample paired t-test (parametric) 

and Wilcoxon Signed Ranked test (non-parametric) was run on Statistical Package for the 

Social Sciences (SPSS). Appendix A, Table A-4, A-5, A-6 and Table A-7 shows the 

calculations and output. Day 0 was taken as the announcement date of the unbundling 

transaction and prior and post outcomes were assessed. Thereafter, size was accounted for and 

the same tests were applied. The event window for the analyses performed covers an  eleven 



19 | P a g e  
 

day period (T=-5 to T=5) and the following is observed across the entire portfolio (per 

company) the trend noted is the parent firms earn positive AARs and CAARs. On the day 

which follows the announcement day (day 1), the firms mostly earn negative AAR. The total 

AAR and CAR earned over the event window (CAR-5,5) is -0.25 % and -2.27% , respectively. 

The negative trend does persist post the announcement date and the AARs and CARs earned 

by the parent firms over the entire event window can be reviewed in Appendix A, Table A-5 

and A-6.  

To re-address the objective of the research it is important to note the aim is to examine the  

performance of firms following the unbundling transaction over a twenty-year sample of 

unbundling’s over an evaluation window of eleven days pre and post the unbundling 

transaction. Therefore, the explanations to follow cover the outcome of the statistical tests 

performed in relation to the hypotheses.  

All statistical tests are based on the significance level of 5% (α = 0.05) and this was assessed 

against the p-value calculated using SPSS. Table 4 and 5 below show the outcome of the two 

statistical approaches (parametric and non-parametric) based on the average abnormal returns 

grouped sample (without factoring in size). In general, the abnormal returns which are earned 

prior to the announcement are 0.3708% and those earned post are -0.9302%. However, when 

factoring in size the AARs tend to be more negative for the big firms (-1.3106%) post the 

announcement versus small firms (-0.3214%). Examining the p-value with and without 

factoring in size the difference earned before and after is not statistically significant. These 

findings do resemble eachother whether size is factored in and explained in more detail below. 

Table 4: Statistical differences in average abnormal return (Sample paired t-test) – 

Grouped   

Source: SPSS 

Null Hypothesis: AAR Before – AAR After = 0 

Period Average (Mean) Standard Deviation   

Prior Announcement (-5;-1) 0.0037 0.0311 

Post Announcement (0;5) -0.0093 0.02900 

T-statistic 1.4153 

p-value 0.1693 



20 | P a g e  
 

Table 5: Statistical differences in average abnormal return (Wilcoxon-Signed Rank test) 

(Grouped)  

Source: SPSS 

Table 6: Sample paired t-test for statistical differences in average abnormal return (Big)    

Source: SPSS 

 

 

 

 

 

 

 

 

Null Hypothesis: AAR Before – AAR After = 0 

Period Average (Mean) Standard Deviation   

Prior Announcement (-5;-1) 0.0037 0.0311 

Post Announcement (0;5) -0.0093 0.02900 

T-statistic (Z-Score) -.190 

p-value 0.8489 

Null Hypothesis: AAR Before – AAR After = 0 

Period  Average (Mean)  Standard Deviation   

Prior Announcement (-5;-1) -0.0038 0.0156 

Post Announcement (0;5) -0.0131 0.0344 

T-statistic 0.8336 

p-value 0.4176 



21 | P a g e  
 

Table 7: Sample parried t-test for statistical differences in average abnormal return 

(Small)  

Source: SPSS 

 

 

Therefore this means that the stock market performance of the parent firm does not improve 

following the unbundling transaction. Furthermore, the overall value  of the firm has not 

improved noting that the results are not statistically significant. Table 8,9 and 10 all show the  

same outcome with the application of the Wilcoxon Signed Rank Test and the same 

conclusions can be drawn on from above. Based on size across all tests; there is no difference 

in size and the results are not statistically significant.  

Table 8: Wilcoxon-Signed Rank test for statistical differences in average abnormal 

return (Grouped) 

Source: SPSS 

 

 

 

 

Null Hypothesis: AAR Before – AAR After = 0 

Period  Average (Mean)  Standard Deviation   

Prior Announcement (-5;-1) 0.0157 0.0450 

Post Announcement (0;5) -0.003214 0.0170 

T-statistic 1.1504 

p-value 0.2796 

Null Hypothesis: AAR Before – AAR After = 0 

Period  Average (Mean)  Standard Deviation   

Prior Announcement (-5;-1) 0.0037 0.0311 

Post Announcement (0;5) -0.0093 0.0290 

T-statistic (Z-Score)  -.190 

p-value 0.8489 



22 | P a g e  
 

Table 9: Wilcoxon-Signed Rank test for statistical differences in average abnormal 

return (BIG   

Source: SPSS 

Table 10: Wilcoxon-Signed Rank test for statistical differences in average abnormal 

return (Small)  

Source: SPSS 

 

Figure 1 below depicts the average returns earned by all companies across the parent firm 

sample over the 95-day observation period. The firms have typically earned negative CAR over 

the eleven day event window (T=-5 to T=5).  

 

 

 

 

Null Hypothesis: AAR Before – AAR After = 0 

Period  Average (Mean)  Standard Deviation   

Prior Announcement (-5;-1) -0.0038 0.0156 

Post Announcement (0;5) -0.0131 0.0344 

T-statistic -.414  

p-value 0.6791 

Null Hypothesis: AAR Before – AAR After = 0 

Period  Average (Mean)  Standard Deviation   

Prior Announcement (-5;-1) 0.0157 0.0450 

Post Announcement (0;5) -0.0032 0.0170 

T-statistic -.866  

p-value 0.3863 



23 | P a g e  
 

Figure 1: Actual return (Raw returns) (T= 0) to (T= -95)  

 

Figure 1 above depicts the full sample of parent firms over the testing window of 95 days. 

There is an evidenced split at t=0 (announcement date) and prior to the event constant returns. 

Post the announcement there is a drop in returns and then a depicted incline.  

Figure 2: Actual returns (Raw returns) (T= -5) to (T= 5)  

 

 

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0-3-6-9-12-15-18-21-24-27-30-33-36-39-42-45-48-51-54-57-60-63-66-69-72-75-78-81-84-87-90-93

A
v

er
a

g
e 

R
et

u
rn

s 

Days

Average Company Returns prior announcment

(Parent Companies) 

Average Company Returns

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

-5 -4 -3 -2 -1 0 1 2 3 4 5

A
ct

u
a
l 

R
et

u
rn

s

Days

Parent Firms Actual Returns 11 days 



24 | P a g e  
 

Figure 3: Average abnormal returns (T= -5) to (T= 5)  

 
 

Figure 2 and 3 present the results of the actual returns and abnormal returns. The abnormal 

returns were calculated using two models; CAPM and three-factor. It is evident there is no 

distinct difference between the model applied based on figure 3.  

Figure 4: Average abnormal returns (T= -5) to (T= 5)  

 

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

-5 -4 -3 -2 -1 0 1 2 3 4 5

A
A

R
s

Days 

Parent Company AARs 11 days 

AARs (CAPM) AARs (3F Model)

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

-5 -4 -3 -2 -1 0 1 2 3 4 5

A
A

R
s

Days 

Parent Company AARs 11 days 

AARs (CAPM) AARs (3F Model)



25 | P a g e  
 

 

Reviewing Figure 4 above it is evident at the time of the announcement a significant decline is 

noted. Thereafter a steady increase is seen bar the decline again three-days post the 

announcement date. Prior to the event consistency is also found. Figure 5  below show all firms 

have earned negative CARs. The results suggest that the reaction to the stock market is of 

course negative during the time period. In both cases of the ARs and CARs there is a negative 

trend observed between t=1 and t=4. Overall, a negative trend is noted post the initial 

announcement of the unbundling depicting an overall negative outcome.  

Figure 5: Cumulative abnormal returns (T= -5) to (T= 5) 

 

4.2 Fundamental Analysis  

Ratio analysis allows for the exmaination of ratios to determine the relationship between one 

quantity and another (Correia, 2019). Typically, and depending on the ratios examined, one 

finds insignifcant outcomes based on ratios. For siginifcant differences to be found it is 

important a meaningful relationship is assessed based on the ratios being examained. It is also 

important to account for the factors which will impact the ratios being examined to conclude 

comments on the future performnce of the ratios.  

Correia (2019) confirms application of ratio analysis can be successful and there are a few 

methods analysts can consider. For the purpose of this research the ratios will be compared 

with historic ratios to identify trends covering the following categorised groups; liquidity ratios 

(Current Ratio), debt management ratios (DTA and DTE) , profitability ratios (ROA and ROE) 

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

-5 -4 -3 -2 -1 0 1 2 3 4 5

C
A

R
s

Days

Parent Company CARs 11 days

CARs (CAPM) CARs (3F Model)



26 | P a g e  
 

and market value ratios (P/E) (see: section 3.3.2). For the purposes of this reasearch and the 

feasibility of data found the following ratios will be reviewed; Current ratio, DTE, ROA, ROE 

and P/E.  

These analyses are done based on the below time periods chosen and then general reveiws were 

performed and conclsusions drawn on based on each ratio chosen to examine.  

Table 11: Announcement Analysis period and number of firms per year  

Announcement Period Number of Companies 

2000 -2005 2 

2005 -2010 4 

2010 -2015 5 

2015 -2020 17 

Source: Authors own estimate – no duplicate unbundling transactions included 

Figure 6: Summary of all companies included based on the announcement period 

 

This section is divided into two analyses;  Section 1: Overall trend analysis and Section 2: Firm 

Split based on high and low ROA and ROE and exmaining if there is a statistical difference 

found based on the abnormal retruns. The following hypotheses will then be addressed;  

H0: There is no difference in the value of the unbundled transaction. Pre and post, the 

announcement date the outcome is not significant.   

HA: There is a difference in value of unbundled transaction. Post announcement there is a 

significant and statistical difference.  

0

2

4

6

8

10

12

14

16

18

2000 -2005 2005 -2010 2010 -2015 2015 -2020

N
u

m
b

er
 o

f 
C

o
m

p
a

n
ie

s 

Annoncement Period

Number of Parent Companies



27 | P a g e  
 

Section 1: Overall Trend Analysis  

Liquidity Ratios  

4.2.1 Current Ratio (CR)  

Correia (2019) explains the typical examination of the current ratio indicates how well the short 

term creditors will be covered by the assets which will be converted into cash in the short term.  

Across the sample of parent firms Tiger Brands resembles the closet to the benchmark and has 

increased over the years post the announcement. The output identified translates to a decrease 

in accounts payable and short term borrowings versus accounts receivable, cash and inventory. 

Factoring in size, the same outcome with Tiger Brands (large firm) is found resulting in an 

outcome of 1.99: 1 closest to the benchmark and Curro Holdings (small firm) in the third  year 

with 1.44:1 post the announcement.  

Overall, examining the results post the announcement across all parent firms the current ratio 

is increasing and not decreasing. The highest outcome found with African Equity 

Empowerment Investments Ltd 5.98:1 three years post the announcement date. All ratio 

outputs mentioned above and in the sections to follow have been summarized based on 

unreported results.  

4.2.1.1 Current Ratio per time period  

Based on the assessments completed for the output per period the following is observed; in the 

initial period 2000-2005 no significant increase or decrease found. A significant decline is 

found between 2005-2010 by Tongaat Hulett Limited from 1.41:1 (t=0) to 0.8:1 (t=3). Contrary 

to prior years a significant increase is found by RMB Holdings Limited from 0.57 (t=0)  to 4.3 

(t=3) during the period 2010-2015. Finally, during the period 2015-2020 majority of the firms 

present an increasing outcome. African Equity Empowerment Investments Ltd shows a 

significant increase versus Curro with the most significant decline. Obviously both are from 

different industries but Curro is the closest to the benchmark of 2:1 (t=3).  

Debt Management Ratios  

4.2.2 Debt-to-Equity (DTE)  

When assessing a company’s financial leverage, debt management ratios can be examined. 

Based on the unreported results the following is noted;  

Overall, the DTE ratio is increasing post the announcement across all firms. There is a 

significant increase noted by Imperial Holdings from 80% (t=0) to 385% (t=3). On the other 



28 | P a g e  
 

hand, a significant decline found for Steinhoff International Holdings from 581% (t=0) to -

321%  (t=3).  

4.2.2.1 Debt-to-Equity per time period  

Analysis of the parent companies three years post the announcement the following is observed; 

during the first two announcement periods (2000-2005 and 2005-2010) no significant increase 

or decrease is found. However, reviewing 2010-2015 a significant increase is found by Hosken 

Consolidated Investments Limited from 52% (t=0) to 152% (t=3).Majority of the firms present 

an increasing outcome in 2015-2020. The most significant outcome is found with Imperial 

Holdings Limited and Steinhoff International Holdings increase and decline, respectively.  

Profitability Ratios  

4.2.3 Return on Assets (ROA)   

Correia (2019) defines this set of ratios to be the measure of management efficiency and risk. 

These ratios are effective as it encompasses the effect of liquidity and debt management on the 

operating results. The ratio output for all profitability ratios ROA and ROE are unreported and 

summarized in the sections to follow.  

4.2.3.1 Return on Assets per time period  

The first announcement period (2000-2005) shows a significant increase seen from FirstRand 

Limited  from -152% (t=0) to - 37% (t=3). Typically across all firms in this range (2005-2010) 

the ROA declines one year and three years post the announcement. However, the most 

significant decline is noticed from Tongaat Hulett Limited in the third year post the 

announcement from 50.1% (t=0)  to 22.48% (t=3).  A general improvement is noted across all 

firms examined during 2010-2015. There is no significant increase or decrease found. 2015-

2020 show that the majority of the firms present and increasing outcome. The most significant 

outcome is the significant decline of African Equity Empowerment Investments Ltd from 

26.54% (t=0) to -2.81% and the increase for Labat Africa Ltd from -49.44% (t=0)  to 111.31% 

(t=2).  

4.2.4 Return on Equity (ROE)   

The financial ratio measure allows one to assess the earning propensity of a company relative 

to the amount of equity owned by the respective company. 

4.2.4.1 Return on Equity per time period  

Initially (2000 – 2005) no significant increase or decrease is found. A general decline is then 

noted across all firms with a significant increase from Telkom SA from 10.98% (t=0) to 



29 | P a g e  
 

125.17% (t=1) and then a significant decline in year t=2 and t=3 to -0.73% for 2005-2010. 

2010-2015 show a significant increase by Glencore PLC from -9.88% (t=0) to 6.88 (t=3) and 

finally during 2015-2020  majority of the firms present an increase one year post announcement 

(t=1) and then a decline is noted. The most significant decline noted by Old Mutual from 

46.87% (t=0)to -7.61% (t=3).  

Market Performance 

4.2.5 Price-to-Earnings (P/E)   

Investors asses these ratios to understand a firm’s past performance and anticipate of what 

could be for the future performance of the firm. The P/E ratio examines the share price of 

dividends against earnings and valuations of shares can be deduced (Correia, 2019). The ratio 

results have been summarized and based on unreported results.    

4.2.5.1 Price-to-Earnings per time period  

Firstly, no significant increase or decrease is found during 2000-2005 and then 2005-2010 

shows a significant increase from Tongaat Hulett Limited with an improvement in the P/E ratio. 

The increase shown is from 157.23X (t=0) to 15.26X (t=3). Overall the firms performance 

based on P/E declines (increasing P/E ratio) during 2010 – 2015. In reviewing the Earnings per 

Share (EPS) an increase is noted from the second year post announcement after a spike from -

0.0197 (t=0) to 0.0090 (t=2) and then an increase again in t=2 and t=3 to 0.08258. Evident 

fluctuations are identified in the final announcement period (2015-2020) and Glencore PLC 

displays gaining more earnings as the Earnings per Share (EPS) presents a significant increase 

from -0.0197 (t=0) to 0.0090 (t=2) and then and increase to 0,0717 (t=2) and thereafter remains 

more stable. On the other hand, Labat Africa Ltd and Steinhoff presents an EPS where Labat 

worsens (-0.2192 to -0.2050) and Steinhoff follows suit (-0.0278 to -1.0990) when examining 

t=0 and t=3, respectively. 

 

 

 

 



30 | P a g e  
 

Section 2: Firm Split  

High versus Low ROA and ROA firms  

Table 12: Summary of Parent Firms and size ranking based on ROA and ROE 

Parent Company Name Announcement Date ROA ROE 

African Equity Empowerment Investments Ltd 2017 High  High  

Anglo American  2007 High  High  

Astrapak  2017 High  Low  

Barloworld Limited  2007 High  Low  

Brimstone Investment Corporation 2010 High High  

Control Instruments Group Pty Ltd  2017 Low  Low  

Curro  2017 High  Low  

ElementOne 2020 Low  Low  

FirstRand Limited  2003 Low  high  

Glencore Plc  2015 Low  Low  

Hosken Consolidated Investments Limited  2014 High  High  

Imperial Holdings Limited  2018 High  High  

Kaap Agri Bedryf  2017 Low  Low  

Labat Africa Ltd 2019 Low  High  

Mondi Limited 2011 High  Low  

Naspers 2019 High  High  

Naspers 2019 High  High  

New Bond Capital  2018 Low  Low  

Old Mutual Plc  2018 Low  Low  

Peregrine Holdings Ltd.  2017 Low  High  

PSG Group 2020 Low  High  

Remgro Limited   2020 Low  Low  

RMB Holdings Limited 2011 Low  High  

Steinhoff International Holdings  2017 High  High  

Telkom SA Limited  2009 High  High  

Tiger Brands Limited 2018 High  High  

Tongaat Hulett Limited  2007 Low  Low  

UCS - UCS Group Limited 2011 High  Low  

Source: Authors own estimate  

4.2.6 Parent Firms - High & Low ROA 

Appendix A, Table A-8,  A-9, A-10, and A-11 depicts the outcome based on summary of 

ROA and ROE size ranking across the parent firm samples using both the CAPM and three 

factor model approach.  Appendix B, Table B-3 to B-14 show the statistical outcomes based 

on the sample paired t test and Wilcoxon Signed Ranked test , respectively for the full sample 

of High and Low ROA ranked firms. Below, Table 12 summarizes the key results showing in 

both instances the average abnormal returns earned prior to and post the event are not 

statistically significant and the results fail to reject the null hypothesis.   



31 | P a g e  
 

Table 13: Statistical significance tests for average abnormal returns (high and low 

ranked ROA parent firms) 

  Source: Excel data analysis  

Further analyses are performed and the outcome can be seen in Appendix B, Table B-3 to B-

14. In each instance the same outcome is noted as above. The results confirms these 

outcomes are not in favor of the null therefore failing to reject with a p-value of 5%. Overall, 

based on the high ROA ranked firms it can be concluded  there is no difference in the value 

of the unbundled transaction. Pre and post, the outcome is not significant. The same outcome 

is noted even when size was factored in based on the ROA of each parent firm.  

The average abnormal and average cumulative abnormal returns earned by high ROA parent 

firms are as follows;  high ROA parent firms earn a negative abnormal return of -0.5170% 

while positive CAAR of 0.1352% are earned post the announcement. On the other hand, Low 

ROA firms earn negative returns (AAR) -1.8326% and -4.1837% post the announcement  date.  

 

4.2.7 Parent Firms - High & Low ROE 

Similarly, to the outcome above the same tests were performed using the ROE rank firms. All 

results were not in favor of the null hypothesis except for the following instance; AAR after 

distribution for sample of High ROE parent firms versus sample of Low ROE parent firms t-

test (Wilcoxon Signed Rank Test). 

The results are summarized below;  

Table 14: Statistical significance tests for average abnormal returns (high and low 

ranked ROE parent firms) 

  Source: Excel data analysis  

Based on the above and using a significant level of 5% the outcome confirms to fail to reject 

the null hypothesis. When reviewing the ranking of the firms prior to and post the 

announcement there is no difference in value of unbundled transactions. 

Method T-stat Z -score 

Sample paired t test  1.41529096 N/A 

Wilcoxon Signed Ranked test  N/A 1.5818 

Method   T-stat  Z -score  

Wilcoxon Signed Ranked test  N/A -0.6494 



32 | P a g e  
 

Based on the average abnormal and average cumulative abnormal returns earned by high ROE 

parent firms the following can be concluded; high ROE parent firms earn a negative abnormal 

return of -1.8786% and CAAR of -3.6226% post the announcement. On the other hand viewing 

the Low ROE firms these earn positive returns of AAR 0.4555% and 1.9807% post the 

announcement.  

Section 3: Spin-Off Firms   

Spin-Off Firms    

A total of 14 spin-off firms were examined owing to the feasibility and access to data available. 

All delisted firms were removed and the firms were reviewed with the purpose of 

understanding the outcome of the AARs and CAARs. 

As the focus of the research is to assess the performance and value of the parent firms post the 

unbundling transaction it is still value adding to examine the outcome of these firms overall. 

The analysis was looked at five days post the announcement and Table 15 and Table 16 

summarize the outcome.  

It is clear the spin-off firms perform similarly to the parent firms showing negative AARs and 

CAARs post the announcement period. Again this is aligned to the work of Blount and 

Davidson (1996) and discussed in more detail in section 5.4  

Table 15: Summary of Sample of Spin-off Firms and AARs , based on CAPM and 3-

Factor Model  

Spin-off Company Name Average AARs (0;5) - CAPM  Average AARs (0;5) - 3F Model  

Premier Fishing & Brands 0.0024 0.0030 

Master Plastics 0.0358 0.0363 

PPC-IOL 0.0029 0.0036 

Lonmin  -0.0060 -0.0063 

Montauk Holdings Ltd  -0.0069 -0.0068 

Kaap Agri  -0.0012 -0.0016 

Prosus -0.0153 -0.0164 

Nedbank  0.0075 0.0075 

Capitec  -0.1072 -0.1034 

RMB Holdings Limited  0.0173 0.0119 

FirstRand Limited  -0.0028 -0.0023 

Vodacom  -0.4188 -0.4152 

Oceana Group Limited  -0.0153 -0.0139 

Business Connexion Group Limited ("BCG") 0.0137 0.0149 

Overall  -0.0353 -0.0349 

Source: Authors own estimate  

 



33 | P a g e  
 

Table 16: Summary of Sample of Spin-off Firms and CAARs , based on CAPM and 3-

Factor Model  

Spin-off Company Name Average CAARs (0;5) - CAPM  Average CAARs (0;5) - 3F Model  

Premier Fishing & Brands 0.0247 0.0245 

Master Plastics 0.0966 0.0976 

PPC-IOL 0.0097 0.0078 

Lonmin  -0.0254 -0.0272 

Montauk Holdings Ltd  -0.0430 -0.0466 

Kaap Agri  0.0302 0.0305 

Prosus -0.0766 -0.0827 

Nedbank  0.0178 0.0170 

Capitec  -0.1100 -0.0934 

RMB Holdings Limited  0.0385 0.0108 

FirstRand Limited  -0.0100 -0.0081 

Vodacom  -2.5133 -2.4963 

Oceana Group Limited  -0.0339 -0.0266 

Business Connexion Group Limited ("BCG") 0.0516 0.0557 

Overall  -0.1816 -0.1812 

Source: Authors own estimate  

5 Discussion of Results  

5.1 Return Analysis  

Overall,  the results found across the sample of parent and spin-off firms resembles the work 

of Blount and Davidson (1996). When a more focused review is done negative abnormal 

returns are observed and no significant changes were identified over the event study window 

both reviewing return and ratio analysis. The only significant change which has been observed 

is examining the firms split by size based on the ROE ratio.  

When exmaining the cumulative abnormal returns this assists with observising the impact over 

the observation period as a whole. This concludes whether or not the investors will earn any 

excess returns over the event period. Furthermore, factoring in size presents an analysis which 

determines if this factor in fact has an impact on the performance and value of the firm.  

To asses statistical significance  the application of both parametric and non-parametric t-tests 

is applied. The importance of information is evident in the outcome of results and confirms 

how informaiton can impact the overall behavior. Furthermore, the change in stock price of the 

company is identified by exmaining the abnormal returns and how this research has approached 

the assesment of information. Suryanto (2015) examines the changes  in the abnormal returns 

so the results are assesed in the same manner and this researhc confirms the change in the stock 

price of the company.   



34 | P a g e  
 

When assessing the type of study chosen it is important to account for the strength of an event 

study and the ability to impact a particular event based on the company’s stock price (Suryanto, 

2015). This type of study has the ability to examine the realtionship found between the changes 

and in the case of this research whether or not there is a difference found prior to and post the 

announcement of an unbundling trnascation. Furthermore, the same examination is done using 

size and conclusions are drawn on. The event study also enables the reader to make conclusions 

on the usefuleness and event occuring in the market and comments on market effciency 

examined further.  

There are contrasting views on whether or not the stock market reacts or does not react to an 

event and inturn if significant differences are found. Thee views have been examined and 

conclusions have shown there are no differences found before and after the event resembling 

the output of this research as a whole.  

5.2 Fundamental Analysis   

In order to evaluate the results suffciently and assess firm specific performance ratio analysis 

will be reiviewed. This is indeed an effective and uselful tool to evaluate performance and adds 

value to the outcome of the results (Correira, 2019).  

Industry norms are a more indepth approach to fundamental analysis. These can be applied to 

all South African listed  firms to understand how the value and performance has signficantly 

improved or not in line with how the industry is performing. This would be noted as splitting 

the sample by sector or industry segmentation and more detailed conclusions can be drawn on. 

This would allow for the occurences of each sector to be considered and a more detailed 

understanding of how firms are operating overall.   

Sector leaders are important to account for as this will influence the outcome of the results 

knowing which of the firms by sector are leading the market and how this has influeced the 

value and overall performance post the announcement of the unbundlings. The results are 

needing to be understood with caution as assessing a firm on wehether it is good or bad does 

present a number of difficulties. However, to avoid the risk of misinterpreation there are 

financial models which exisit which can also be considered in furture research to overcome the 

above. Factoring in the contributions to the ratios is key. For example, examining the ROA 

there may be plant and equipment which is depreciated and old which influences the overall 

performance of the fima in comparison to a firm with newer assets and resulting in the risk of 



35 | P a g e  
 

“failure prediction.” Methods to evalute inputs of each ratio is dependent on the firm in question 

and it is value adding to extend research to note the different methods used.  

Another approach of analyzing the ratios was to split the firms based on the ROE and ROA 

and further identify a group of high and low firms based on the respective ratio. This was done 

using Percentiles where 33rd represents the low ROA/ROE firms and 66th the high ROA/ROE 

firms. Each group was then looked at against the calculated abnormal returns and statistical 

tests were performed in Microsoft Excel using the sample paired t test and Wilcoxon signed 

ranked test.  

The statistical tests were performed for the complete sample of parent firms , high and low 

ROA and ROE firms. For all groups examined the following was observed; there is no 

significant differences found. However, when examining the comparison between the high and 

low ROE firms and the difference between the High ROE firms prior to and post the 

announcement a statistical difference is found at the 5% level of significance.  

It is evident the High ROE firms do appear to perform slightly better versus the High and Low 

ROA firms and the complete sample of firms. In addition, examining the abnormal and 

cumulative returns the following does stand out amongst the sample of parent firms; 

Barloworld Limited earned positive CARs pre and post the announcement and is classified as 

a high ROA firm and low ROE firms based on the percentile split. Similarly, Labat Africa Ltd 

initially earned positive returns and then negative returns followed with this company being 

classified as low ROA firm ; high ROE firm. However, Remgro Limited showed positive CARs 

earned pre and post announcement and only negative returns in the final year of the event 

window (t=5) was earned. In this case the firms are classified as low ROA ; low ROE.  Finally, 

Steinhoff International Holdings earned positive returns pre and post the announcement and is 

classified as high ROA; high ROE firm.   

It is important to highlight the results presented should be viewed with caution as the sample 

of firms in each size group based on ROA and ROE is small and there is room for error or lack 

of identifying a clear trend in comparison to a more diversified sample of firms. No adjustments 

have been made to the share price level and the results of the parent firms is expected to decline 

in terms of the price level. This should be taken into account when the results are examined  in 

section 5.3 and 5.4 to follow. Limitations mentioned above should be considered and accounted 

for , for further research purposes to achieve a more detailed analysis.  



36 | P a g e  
 

In examining the work of Ainy (2018) the purpose was to examine if any differences were 

found in the financial performance before and ager and event. The outcome showed that there 

was a lack significant differences found and this is aligned to the literature as presented above.  

5.4 Overall  

When accounting for all results observed across Parent and Spin-off firms it is confirmed these 

findings are in line with those of Blount and Davidson (1996). Examination of unbundling 

transactions raises two viewpoints in South Africa; Corporate and Capital market perspectives 

and is further detailed by Blount and Davidson (1996). In understanding each view the 

corporate view speaks to the movement from an efficient structure and supports the reason for 

unbundling transactions to not be market related. On the other hand, South African markets 

may not be equipped or advanced enough to accommodate such financial activities to 

ultimately enhance financial stability and therefore supports the capital market view. Blount 

and Davidson (1996) make reference to and compare the results to international studies one 

being USA. Furthermore, the findings of Gaughan (2007) supports international findings and 

in respect of this research the findings are too aligned to this viewpoint. The viewpoint is  

understood that that the results are indeed contradictory to the USA findings where abnormal 

positive returns are found.   

Overall, the parent firms earn positive abnormal returns (overall , 0.3708%) prior to the 

announcement then examining  post the event negative returns are earned both by the parent   

(-0.9302%)  and spin-off firms (-3.4910%) This confirms that no significant difference is found 

and supports the argument of Blount and Davidson (1996).   

Furthermore, examining the work of  Suryanto (2015) the detailed review of average abnormal 

returns prior to and post the unbundling are aligned to these findings. It is noted there are no 

significant differences found between the AARs prior to and no impact found on the results 

post the event. Therefore, this research fails to prove if there are any differences observed in 

the average abnormal returns before and after the announcement of the unbundling transaction.  

The  sample was looked at across a few financial ratios to understand if value is created post 

the announcement of the unbundling transactions. This was done for 3 year period post the 

announcement . This period was chosen based on the feasibility of the data and findings so that 

conclusions can be drawn on. The overall review of the trends and unique outliers is aligned to 

the work of Ainy (2018). The results can be compared to the performance outcome of M&A 

and the observations resemble eachother. The sole purpose of a company engaging in a Merger 



37 | P a g e  
 

is for the survival of the company and to avoid the company from encountering financial 

difficulty for example, bankruptcy. The focus of this study was to identify a trend and 

understand if in fact the firms reflect positive or negative outcomes based on the ratios assessed.  

In examining High and Low ROE and ROA firms this too is aligned with the work of Ainy 

(2018) and it can be concluded there are no significant differences found in financial 

performance prior to and post the announcement. The absence of synergies found are owing to 

the short time frame chosen and may be the reason as to why the lack of statistical observations 

are found too.   

Bhana (2006) comments on the synergies associated with profitability and debt and this too 

should be remembered when reviewing these results. As described by Bhana (2006) the private 

objectives of the decision makers are not accounted for and another way of viewing the 

performance outcome of the financial activity may be looking at how efficient the entity is to 

the market (L