Equity Carve-outs

Diploma Thesis from the year 2001 in the subject Business economics - Investment and Finance, grade: 1,0, University of Mannheim (unbekannt), language: English, abstract: Inhaltsangabe:Abstract:§As especially in the 1990s corporations today still reconsider their organisational and ownership structures to become more competitive and profitable. Corporate restructuring, however, is not a value creating mechanism per se, but it can enhance corporate flexibility and focus the company on its main line of business. During a restructuring process, the parent firm has several options and choosing the right one in order to be successful is probably one of the most challenging tasks for the management. Options can be utilised to reduce ownership through a Carve-out or eliminate involvement in a Spin-off or Asset Sell-off. A rather unknown form, the Tracking Stock, will also be mentioned and explained. They all added a new dimension to the corporate landscape. §Typically, the corporation s aims of restructuring are to create shareholder value. In the last two decades, the tendency was to strengthen the focus on its core businesses and becoming more and more a pure player in its extreme form. The potential of divestiture activities during the next years will still be very high, if one imagines that only in Germany the 30 DAX companies own around 4.500 subsidiaries.§One particularly interesting alteration of firm boundaries involves a parent firm partially divesting its ownership stake in a subsidiary via an Equity Carve-out. Equity Carve-outs have become widely known tools for corporations that shed divisions, which are no longer part of their core business. Especially during the last years high growth segments with tremendous potential could be unlocked through this form of divestiture. One of the main advantages for the parent is that it can still benefit from the growth of its subsidiary, by selling only a portion of the new entity in an IPO. Furthermore the subsidiary can gain new resources through a capital increase and operate independently.§Chapter two will first give an insight about the effect of diversification on firm value and then discuss various forms of restructuring, such as Spin-offs, Equity Carve-outs and Tracking stocks. The aforementioned Equity Carve-out is then taken into closer consideration in chapter three, which discusses why and under which circumstances and motives companies may utilise this form. Thereafter, chapter four shows the reader how to implement an Equity Carve-out. Emphasis will lie on the IPO process, the legal, tax and accounting issues for various countries, as well as on the importance of Investor Relations.§Finally, the empirical part of this paper will be a survey about the stock price reaction of the parent company, if it announces an Equity Carve-out of one of its subsidiaries . So far, theoretical arguments, as well as empirical surveys, mainly manifest the hypothesis, that shareholders gain from corporate Equity Carve-outs. By analysing a substantial body of Carve-outs test results will be compared with former surveys and new conclusions can be added to the perpetual research in Equity Carve-outs.§Inhaltsverzeichnis:Table of Contents:§IntroductionI§Table of FiguresIV§List of TablesV§AbbreviationsVI§1.INTRODUCTION1§1.1Problem1§1.2Approach2§2.DOES THE MARKET VALUE DIVERSIFICATION ?3§2.1Diversification effect on firm value3§2.1.1History of diversification3§2.1.2Value reducing aspects of a diversified company4§2.1.3Value enhancing aspects of a diversified company5§2.1.4Overall effect of diversification6§2.2Classification of Equity Carve-outs and related alternatives7§2.2.1Spin-off8§2.2.2Equity Carve-out9§2.2.3Tracking Stock10§2.2.4Comparison of Spin-offs, Carve-outs and Tracking Stocks11§3.MOTIVES AND RISKS OF AN EQUITY ...