CH 16 :: alternative restructuring strategies

Question 1

welke restructuring

Answer 1

in orde to realize vision –> restructuring

operational or financial restructuring

Question 2

DIT H ZIJN OPERATING RESTRUCTURING

Question 3

why firms exit business

Answer 3

1) focus motive
2) managerial capabilities (efficiency) motive
3) regulatory concerns
4) financial contraint motive
5) reducing agency problems
6) divestitures

Question 4

explain divestitures

Answer 4

= sell portion of firm to outside party –> resulting in cash infusion

most common restructuring strategy

Question 5

divestitures reasons

Answer 5

• increase corporate focus
• assets worth more to buyer than seller
• LIQUIDITY HOPTHESE
  =
  1) firm liquidity hypothese= refocusing firms will divest assets if segment are in industries that are more liquid. if company sees that activities are traded a lot on financial or corporate market –> higher tendency to sell

2) assets liquidity hypothese= when decision had been taking to divest –> most liquid segment willen be sold firms

Question 6

spin off

Answer 6

= giving shares of subsidiary share to your shareholders –> SH of parent company become direct owners of new spin off comp

selling shares –> new legal subsidiary created with own independent unit and own rules and management

Question 7

equity carve out

Answer 7

= parent company retains partial ownership of subsidiary while also selling shares of subsidiary to the public -> subsidiary becomes seperate, publicy traded company

2 forms
1) Initial public offering
=first offering of stock to public of all or a portion of the equity of normal privately held firm
–> issue price vaak lager dan lager dan first price on market
entire company goes public –> becomes standalone entitity with own management etc –> company operates independently

2) subsidiary equity carve-out
A subsidiary equity carve-out (SECO) is a corporate strategy where a parent company sells a portion of the equity (ownership interest) in one of its subsidiaries to the public through an initial public offering (IPO). This process allows the subsidiary to become a separate, publicly traded company while still maintaining a degree of connection to the original parent.

portion of subsidiarys equity is offered public rest is stull ownership of parent
–> subsidiary still has connection to parent company –> parent still has significan ownership stake in subsidiary

Question 8

split offs

Answer 8

variation of spin-off

parent company shareholders given option to exchange their shares in parent for shares in subsidiary (tax free)
–> less selling pressure on stock price (subsidiary)

Question 9

wealth effect spin off returns

Answer 9

• Outperform stock market indices
• Reflects likelihood that spun-off units will become takeover targets
• One-third of spun-off units are acquired within 3 years
• Productivity gains (reduction of total wage costs and employment) tend to persist for 5 years
• Smaller spin-offs tend to outperform larger ones