Corporate Restructuring

Corporate Restructuring
Pertains to a large array of managerial strategies aimed at increasing firm value

Asset Engineering

Change in the size of a firm’s asset base

Financial Restructuring

Changes in the debt or equity of a firm

Rationale

Increasing competitive pressures are forcing firms to examine new ways of becoming more efficient, and restructuring has become an ongoing process

Corporate Restructuring Methodologies
 

Asset Engineering 1 Asset Sales Spin-offs, Splitoffs, and Split-ups Equity carve-outs Sell-offs

Financial Restructuring Exchange offers Share repurchases Going-private transactions *Leveraged buyouts *Management buyouts

2 Liquidations

Spin-Offs

A firm separates the operations of a subsidiary from that of the parent by distributing to all existing shareholders of the parent, on a pro rata basis, those shares that the parent owns in the subsidiary. This creates a new company with, initially, the same shareholders as the parent has.Existing shareholders maintain there claims on both the parent and the spun-off subsidiary. Most-spin-offs are treated as stock dividends and are therefore, a tax-free exchange.

Split-Offs

Split-offs occur when a firm offers to its shareholders some, but not all, of its shares in a subsidiary in exchange for their shares in the parent. The proportionate ownership of the two firms changes with the parent’s firm’s remaining shareholders no longer exercising even indirect control over the subsidiary.

Equity Carve-Outs
Equity carve-outs are transactions in which some of a subsidiary's shares are sold to the general public. Thus, an equity carve-out is an initial public offering of some portion of the subsidiary’s equity.

Sell-Offs
Sell-offs, also known as divestitures, is a relatively straightforward transaction in which a segment of s firm is sold to a third party for cash, securities, or a combination of the two.

Liquidation
A liquidation is a transaction in which a firm sells its entire portfolio of assets to one or more firms for cash, which is then distributed to its shareholders. The liquidating firm then ceases to exist as a corporate entity.

Going-private transactions
A going-private transaction or a buyout is the transformation of a public corporation into a privately held firm. Such transactions include pure going-private transactions, management buyouts, and leveraged buy outs.

Pure going-private transactions
The only group that takes an equity stake in the firm is the firm’s management. There is no third party equity participation (I.e., no outside equity holders) in the transaction.

Management Buyouts
A unit’s management acquires the unit from its parent firm.

Leveraged Buyout
Leveraged buyout occurs when a small group of investors acquires- primarily through borrowingthe stock or assets of a formerly public company.

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