RESTRUCTURING AND DIVESTMENTS CORPORATE RESTRUCTURING STRATEGIES
  1. Divestiture - the sale of a segment of a company to a third party ... sale may be for cash or securities or a combination. Assets may be revalued for future depreciation.... represents about 40% of acquisitions by number and 35% by dollar value.

2. Spin-off - a company distributes on a pro rata basis all the shares it owns in a subsidiary to its own shareholders .... the result is two or more public corporations ... no money changes hands ... subsidiary's assets are not revalued ... transaction is tax-free and is treated as a stock dividend.

3. Split-ups - two or more new companies come into being in place of the original company..usually accomplished by spin-offs.

4. Equity carve-outs - some of the subsidiary's shares are offered for sale to the general public.

5. Split-offs - some bpt not all of the parent company's shareholders receive the subsidiary's shares in return for which they must relinquish parent company shares.
 

WHY DIVESTITURES?
  1. A method of dismantling conglomerates (Gulf and Western)

2. Abandoning the core business (B.F.Goodrich).

3. Change in corporate strategy (Allegis - UAL)

4. Adding value to the firm by selling into a better f it (Dow Jones).

5. Too large an additional investment required (Gould).

6. Cashing in on past successes in order to strike out into new ventures (Hanson PLC).

7. Selling unwanted assets from prior acquisitions (Pullman)

8. Selling assets in order to take down some LBO debt (DuPont)

9. Downsizing by selling off a crown jewell to look like a less-desirable target (Brunswick).

10. A condition required for anti-trust purposes (Santa Fe)

11. An MBO of an operating division to some current management.

12. Means of f inancing another acquisition (Emerson Electric)

13. Admitting a mistake in a prior acquisition (Mobil)

14. After experience with the cnadidate, management determination that it does not f it in with the long-range strategy of the company.
 

III. FINANCIAL EFFECTS OF DIVESTITURES

 

Seven studies quoted in text indicate consistent positive abnormal gains to seller where division sale represented at least 10% equity stake. ... 44% of parents reported a loss on sale .... 56% reported profits .... average sale price was 90% of original purchase price which averaged 143% of pre-takeover market value.