18: Corporate Restructuring Flashcards
Corporate Actions include:
- Investment Actions
- Divestment Actions
- Restructuring
Investment actions are to increase:
size & scope
Divestment actions are to decrease:
size & scope
Restructuring is used to improve:
performance
ROIC
Investment actions include:
equity investments
joint ventures
acquisitions
… to purse
growth, synergies, or undervalued targets
Divestment actions include:
sales
spin-offs
… are made to:
increase growth or profitability
or reduce risk
Materiality is defined by:
Size & Fit
Size: Large actions >10% EV
Fit: same industry? business model?
Materiality could signal to shareholders positive or negative indicators
Materiality Size
Large actions are:
> 10% of EV
Materiality Fit
Fit refers to alignment between:
action and expectations
Business models, strategies, industries
Relative valuation methods for valuing the target of a corporate restructuring action:
- Comparable Company analysis
- Comparable Transaction analysis
- Premium Paid Plus analysis
CCA
- Used to value:
- Uses:
- Takeover premium:
- Used to value: spin-offs (not acquisitions)
- Uses: relative valuation metrics for similar firms to estimate MV
- Takeover premium: must be added
CTA:
- Uses:
- Takeover premium:
- Uses: actual takeover transaction prices
- Takeover premium: already included in historical transaction price
Premium Paid Analysis
The acquiring firm typically pays a premium over the current market price as…
an incentive for the target company to accept the offer
Spin-offs involve a distinct part of a business seperating to:
form a new, independent company
no cash involved
Sell-offs involve selling a division to:
another company for cash
;proceeds are returned to shareholders (cash or stock) or put to better use
