- Overview of Mergers & Acquisitions
- M&A: Earnings Per Share & The “Bootsrap” Effect
- Industry Lifecycle Phase and M&A
- Pre-Offer Defense Takeover Mechanisms
- Post-Offer Defense Takeover Mechanisms
- Herfindahl-Hirschman Index (HHI)
- Valuing Target Companies
- Merger Gains to Shareholders & Post Merger Valuation
- Types of Restructuring
Types of Restructuring
Strategic decisions made by corporations are not limited to expansion; sometimes the decision to downsize can benefit the company’s valuation. In this article, we will discuss the various forms of restructuring.
This action is the sale of a business unit to an outside company (note that divestures are sometimes forced upon companies under antitrust law). Below are some reasons for divestures:
- Sometimes a firm may divest a business unit to raise cash.
- Sometimes a subsidiary no longer falls within the firm’s strategic plans.
- Sometimes a reverse synergy is created when business units are worth more separately than combined under the firm.
- Sometimes a firm simply cannot earn an appropriate rate of return on a business unit and will sell to a buyer with better capabilities in that specific area.
In this restructuring instance, a company will establish a new legal entity from one of its business units. Spin-offs can also be forced by law.
- Shareholders at the time of the spin-off will get a proportional amount of shares in the spun-off entity.
- While a divesture infuses cash into the company, a spin-off does not.
- A spin-off may be undertaken to allow company management to focus on “core” operations.
Equity Carve Out
The company sells a business unit in the form of public offering.
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