E - Corporate reconstruction and re-organisation Flashcards
What would be some possible issues when concluding reconstructions?
Book building (consulting potential investors /underwriters)
Impact on company finances (net proceeds)
Sufficient liquidity for normal operations
Impact on capital structure/cost of capital
Balancing costs and benefits associated with listing
What matters must one consider with regards to demergers?(4)
Fairness of equity values for the various divisions (combined vs sum of the parts
Level of diversity is maintained
Debt capacity and sale proceeds implications
Continued equity stake in separated businesses
What must one consider when concluding on the market value of equity remaining unchanged after the implementation of a proposal?
Changes in growth rate in free cash flows and sales revenue
Changes in business and financial risk of new business
Revised asset beta due to change in business risk
Neither the cost of equity nor the market value of equity is independent of each other and they both will change as a result of the change in business strategy
What are some possible benefits and drawbacks of demergers?
The management teams would be able to focus on creating value for each company separately which would help realize full company value
create a unique financial structure that is suitable for each company
may be an expensive process to undertake and may result in a decline in the value of the companies overall
terms of the loans maybe re-negotiated
