Value creation by block acquisitions and the importance of block owner identity

- We analyze wealth effects by minority block acquisitions in German target companies.
- The positive wealth effects deviate by the identity of block onwers.
- Besides the identity of the block the size of the block is also relevant.
- Wealth effects are larger for firms with poor past performance.

We examine stock price reactions to minority block purchases in German target companies. Our results document that the formation of new outside blocks leads to significant value creation for target shareholders, the size of the effect depending on the identity of the block acquirer. As blocks by strategic investors or activist sponsors entail significantly higher returns compared to pure financial block acquirers this result can be ascribed to a differentiated support of the monitoring hypothesis of agency theory. We also find a negative relation between target firms' growth before the acquisition and the value generation by new block owners.