Lecutre 7: Divesitutres Flashcards
What is a divestitutre?
A sale of a portion of a company to an outside party for a cash infusion
What is dec-conglomerisation?
- increases focus on the firm
- betters operations by allocating resources better
- Nokia originally rubber works before moving into electronics
- Royal Vopak divestured, reduced from €5.6b to €750m, but became x3 larger than was before just a few years later
What happened with BAA?
- had to reduce size due to monopolisation issues
- sold edinbrugh and London airports
What happened with Quaker and Snapple?
- was bad investment for Quaker, so corrected mistake
- coke and Pepsi moved into fruit drink market
- venture resulted in losses of $700m
What happened with GE?
- their divestiture was worth more to United technologies
- fire alarm and security wing wasn’t a main focus
What happened with BP?
-after gulf oil spill they had to raise money to pay for clean up
What are the selling processes?
- One on one
- Public auction
- Controlled auction
What might affect purchase price?
- net synergy potential
- desire for control
- growth potential
- target size
- targets eagerness to sell
- information asymmetry
- leverage
What is a spin off?
New legal subsidiary created by parent with new subsidiary shares given to parent shareholders on a pro rata basis
It is also tax free
How much did Kraft acquirer Cadbury for?
$19b
What measures did Kraft take to fix mistake?
Activist investors suggested creating slow growing U.S. groceries divestiture and having a fast growing global snack parent
