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1、Alternative Restructuring Strategies,Experience is the name everyone gives to their mistakes. Oscar Wilde,Learning Objectives,Primary Learning Objective: To provide students with an understanding of alternative exit and restructuring strategies. Secondary Learning Objectives: To provide students wit
2、h an understanding of Divestiture, spin-off, split-up, equity carve-out, split-off, and tracking stock strategies Criteria for choosing strategy for viable firms Options for failing firms,Divestitures,Sale of a portion of the firm to an outside party generally resulting in a cash infusion to the par
3、ent. Most common restructuring strategy. Motives: De-conglomeration / increasing corporate focus Moving away from the core business Assets are worth more to the buyer than to the seller Satisfying government requirements Correcting past mistakes Assets have been interfering with profitable operation
4、 of other businesses,Deciding When to Sell: Financial Evaluation of Divestitures,Estimate units after-tax cash flows viewed on a standalone basis, carefully considering dependencies with other operating divisions Determine appropriate discount rate Calculate the units PV to estimate enterprise value
5、 Calculate the equity value of the unit as part of the parent by deducting the market value of long-tem liabilities Decide to sell or retain the division by comparing the market value of the division (step 3) minus its long-term liabilities (step 4) with the after-tax proceeds from the sale of the d
6、ivision Give examples of interdependencies that might exist among the operations of a parent firm? What is the appropriate discount rate for valuing a specific business unit within a parent firm? (i.e., the parents cost of capital or the cost of capital of the industry in which the business unit com
7、petes),Potential Seller,Reactive Sale,Proceed to Negotiated Settlement,Pursue Alternative Bidders,Public Sale or Auction,Private “One on One” or Controlled Auction,Proactive Sale,Public Sale or Auction,Private “One on One” or Controlled Auction,Divestiture Selling Process,Public or Controlled Auctio
8、ns,Sequence of events: 1. Qualified bidders sign nondisclosure / receive prospectus 2. Submission of non-binding bids expressed as range 3. Bids ranked by price, financing ability, form of payment, form of acquisition; and ease of deal 4. Best and final offers,Choosing the Right Selling Process,Sell
9、ing Process One on One Negotiation (single bidder) Public Auction (no limit on number of bidders) Controlled Auction (limited number of carefully selected bidders),Advantages/Disadvantages Enables seller to select buyer with greatest synergy Minimizes disruptive due diligence Limits potential for lo
10、ss of proprietary information to competitors Most appropriate for small, private, or hard to value firms May discourage some bidders concerned about excessive bidding by uninformed bidders Potentially disruptive due to multiple due diligences Sparks competition without disruptive effects of public a
11、uctions May exclude potentially attractive bidders,Spin-Offs,Spin-Offs: New legal subsidiary created by parent with new subsidiary shares distributed to parent shareholders on pro-rata basis (e.g., Medco by Merck in 2004) Shareholder base in new company is same as parent Subsidiary becomes a publicl
12、y traded company No cash infusion to parent Tax-free to shareholders if properly structured,Spin-Offs,Stage 1: Parent board declares stock dividend of subsidiary shares,Stage 2: Parent has no remaining interest in subsidiary,Parent Firm,Parent Firm Shareholders,Subsidiary,Parent Firm,Parent Firm Sha
13、reholders,Subsidiary Independent of Former Parent,Subsidiary Stock Paid to Shareholders As Dividend,Parent Shareholders Own Both Parent & Subsidiary Stock,How might a spin-off create value for parent company shareholders? How might a spin-off create value for spin-off shareholders?,Kraft Foods Break
14、s Up,In 2010, Kraft acquired British confectionery company Cadbury for $19 billion. While the firm became the worlds largest snack company with the takeover, it was still entrenched in its traditional business, groceries, on the books at a low historical cost. The company now owned two very differen
15、t product portfolios. Between January 2010 and mid-2011, Krafts share price grew faster than the S however, it continued to trade at a lower price-to-earnings multiple than such competitors as Nestle and Groupe Danone. Expressing concern that Kraft was not realizing the promised synergies from the C
16、adbury deal, activist investors, Nelson Peltzs and Bill Ackman, had discussions with Krafts management about splitting the firm. To avert a proxy fight, Krafts board announced on August 4, 2011, its intention to divide the firm into two distinct businesses. The proposal entailed separating its faster-growing global snack food business from its slower growing U.S. centered grocery business. The separation was completed through a spin-off to Kraft Food shareholders of the
