Professional Documents
Culture Documents
Restructuring and Divestitures
Restructuring and Divestitures
Ownership relationships
Spin-offs Split-up Equity carve-outs
Other strategies
Definitions
Divestiture
Sale of segment of a company to a third party Sale for cash or securities or some combination thereof Assets revalued for purpose of future depreciation by the buyer
Spin-off
Company distributes on a pro rata basis all shares it owns in a subsidiary to its own shareholders Two separate public corporations with initially same proportional equity ownership now exist No money changes hands Subsidiary's assets are not revalued Transaction treated as a stock dividend Transaction is a tax-free exchange
Equity carve-outs
Some of subsidiary's shares are offered for sale to general public Bring infusion of cash to parent firm without loss of control Often sell up to 20% in IPO, later spin off of remainder of shares
Split-ups
Two or more new companies come into being in place of original company Usually accomplished by spin-offs
Change in strategic focus which may reflect realignment with firm's changing environments Adding value by selling into a better fit Firm is unable or unwilling to make additional investments to remain in a business Harvesting past successes to make resources available for developing other opportunities
Discarding unwanted businesses from prior acquisitions to value-increasing buyer Divestiture to finance major acquisitions or LBOs Divestiture used as a takeover defense by selling off "crown jewel" Divestiture to obtain government approval of a combination of segments with competing products
Corporate sale of divisions or business units to operating managements Divestiture of unrelated divisions to focus on core businesses Divestiture of low margin product lines to improve margins and profitability Divestiture to finance another firm Divestiture to reverse prior mistakes Divestiture of businesses after learning more about them
75% of divested divisions are unrelated to core activities of seller Supports hypothesis that better fit between buyer and divested divisions accounts for some of value gain