5. Corporate restructuring

Overview
1. 1. Asset restructuring
2. 2. Equity and liability restructuring
3. 3. Financial effect of corporate restructuring
1. Asset restructuring
1. 1.1 Framework for corporate restructuring
  1. Quickly adapt
  2. Divestures
    1. Spin offs
      1. Split offs
        Equity carve out
        Parent sell shares of proportion of assets and maintains controll
        Tracking stock
        Liquidation
        Dual class
        A : Voting rights
        B: Dividend
        MBO/LBO/MBI
        Going private
        MBO: Managers of company bus it
        MBI: Managares buys another company
        Financed by debt
        Close down of subsidiary
        Asset distributed along creditors and equity holders
        Common stocks issued b parent that only tracks this division
        Parent shareholders receive stock in the new company in exchange for the parent shares
      2. Shares in assets created and distributed to shareholders
    2. Sale of portions of a firm
      1. Seller perspective: Focus
        Buyer perspective: Strategic
2. Rationale
  1. Financial
    1. Regain financial health
      1. Redue leverage
        Return cash to shareholders
        Adding value
        Nota:
        Sell assets to somebody who can use it better
        Tax gains
        Large additional investment required
        Harvesting past sucess
        MBO
        Reversing mistakes
        Nota:
        Following failed attempt to diversify
        Profitability
  2. Strategic
    1. Strategic
      1. Adjust to changing environment
        Dismantling conglomerates
  3. Legal
2. Equity and liability restructuring
1. Buy back shares
2. Issue new debt
3. Refinancing
3. Financial effects of corporate restructuring
1. Balance sheet effects
2. Positive market reactio
  1. Short term market reaction
    1. Long term market reatiocn
      1. 76 % 3-year mean return
    2. Divestment: 1-2% announcemnet date
    3. Spin offs: 3-5% on announcement date
    4. Equity carve out:2-3%
  2. Rationale
    1. Cash availability
      1. Market values focused companies
        Remaining asset used more efficiently
        Overcome tax and regulatory constraint
        Reduce gearing and regain financial health
        Nota:
        Leverage goes down --> beta goes down --> cost of capital goes down -- > price goes up.
        Signal
        Nota:
        Divestment: Signal financial distress Spin-offs: Signal focus

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5. Corporate restructuring

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