Скачать презентацию —- Chapter 12 —- Restructuring Organization and Ownership Скачать презентацию —- Chapter 12 —- Restructuring Organization and Ownership

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---- Chapter 12 ---- Restructuring Organization and Ownership Relationships © 2001 Prentice Hall Takeovers, ---- Chapter 12 ---- Restructuring Organization and Ownership Relationships © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 1

Spin-Offs • Company owns or creates a subsidiary whose shares are distributed on a Spin-Offs • Company owns or creates a subsidiary whose shares are distributed on a pro rata basis to shareholders of parent company • Subsidiary becomes publicly owned corporation © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 2

 • Parent company often will retain from 10% to under 20% of shares • Parent company often will retain from 10% to under 20% of shares of the new subsidiary • Spin-off often follows the initial sale of up to 20% of the shares in an initial public offering (IPO) — transaction known as an equity carve-out © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 3

 • Event return studies of spin-offs – Significant positive 3 -5% abnormal return • Event return studies of spin-offs – Significant positive 3 -5% abnormal return to parent shareholders – Size of announcement effect positively related to size of spin-off – Spin-offs to avoid regulation experienced abnormal returns of 5 -6% as compared to 2 -3% for the remainder of the sample – No adverse effect on bondholders © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 4

– Tax effects • No positive abnormal returns for taxable spin-offs • Positive abnormal – Tax effects • No positive abnormal returns for taxable spin-offs • Positive abnormal returns for nontaxable • Controlling for size, tax effects disappear – Both spin-offs and their parents are more frequently involved in subsequent takeovers • Firms which engage in no further restructuring activity earn only normal returns • Firms which engage in subsequent takeovers account for positive abnormal returns © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 5

 • Performance studies of spin-offs – Bregman • Annualized returns were 31. 8%, • Performance studies of spin-offs – Bregman • Annualized returns were 31. 8%, 18 points better than S&P 500 – Karen and Eric Wruck • Spin-offs outperformed overall stock market • Few spectacular performances dominated results – Forbes study • Combined stock performance of parent and spinoff – 40% did better than S&P 500 – 60% underperformed © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 6

– Anslinger, Klepper, and Subramaniam (1999) • Sample of 12 spin-offs achieved returns over – Anslinger, Klepper, and Subramaniam (1999) • Sample of 12 spin-offs achieved returns over a two-year period of 26. 9% compared to 17. 2% for the S&P 500 • 8 spin-offs underpeformed index – Mixed results may reflect characteristics of industries – Firms in industries with excess capacity or low sales growth underperform broader indexes – Results should be related to industry peers © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 7

 • Tax aspects of spin-offs – Spin-off qualify for tax-exempt status if parent • Tax aspects of spin-offs – Spin-off qualify for tax-exempt status if parent company own 80% of voting subsidiary stock – Spin-off transactions • Companies spin off with two classes of stock – Parent sells nonvoting class of stock in public offering and then spins off voting stock tax free – Parent can do an equity carve-out of 20% of the voting stock, spin off remainder and entire spin-off transaction is tax free © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 8

 • Companies create new subsidiary – Parent company creates subsidiary – Subsidiary has • Companies create new subsidiary – Parent company creates subsidiary – Subsidiary has two classes of shares: Class A nonvoting, Class B voting – Parent company owns all B shares – Parent company distribute A shares to its shareholders – Parent company may have option to buy back proportion of subsidiary's stock it does not now own – Parent company is not required to buy back shares or to put more money into subsidiary – Creation of subsidiary allows parent to separate risk of subsidiary business from its core operations — shareholders decide whether to increase or decrease their own risk © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 9

Equity Carve-Outs • Equity carve-out is an IPO of some portion of the common Equity Carve-Outs • Equity carve-out is an IPO of some portion of the common stock of a wholly owned subsidiary • Also referred as "split-off IPOs" • Resembles seasoned equity offering of the parent in that cash is received from a public sale of equity © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 10

 • Other changes when subsidiary equity is • Other changes when subsidiary equity is "carved out" – IPO of common stock of subsidiary initiates public trading in a new and distinct set of equity claims on assets of subsidiary – Management system for operating the assets is likely to be restructured – Public market value for operations of subsidiary becomes established – Financial reports are issued on the subsidiary operations © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 11

 • Equity carve-outs can be used by a firm to raise equity funds • Equity carve-outs can be used by a firm to raise equity funds directly related to the operation of a particular segment or industry • Equity carve-outs also used as first step in spin-off and split-ups © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 12

 • Comparison to spin-off – Similar to voluntary spin-off in that it results • Comparison to spin-off – Similar to voluntary spin-off in that it results in subsidiary's equity claims traded separately from the equity claims on the parent entity – Differences • In spin-off a distribution is made pro rata to shareholders of parent firm as dividend; in equitycarve-out, stock of subsidiary is sold in public markets for cash which is received by parent • In spin-off, parent firm no longer has control over subsidiary assets; in carve-out, parent generally sells only minority interest in subsidiary and maintains control over subsidiary assets and operations © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 13

 • Comparison to divestitures – Similar in that cash is received – Differences • Comparison to divestitures – Similar in that cash is received – Differences • Divestiture is usually to another company • Control over assets sold is relinquished by parent-seller and trading of subsidiary is not initiated © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 14

 • Transaction examples – GM-Delphi • In August 1998, the GM board of • Transaction examples – GM-Delphi • In August 1998, the GM board of directors voted to separate Delphi from GM • In February 1999, Delphi completed its IPO of 100, 000 shares of common (17. 7% equity carve-out) while GM held remaining 465, 000 (82. 3%) of Delphi's outstanding stock • In April 1999, board of directors approved spin-off of 452, 565, 000 of GM's Delphi shares through a dividend of 0. 7 shares of Delphi for one share of GM common stock • Remaining 12, 435, 000 of GM's shares were contributed to the General Motors Welfare Benefit Trust • Delphi became a fully independent, publicly traded company (split-up) after the spin-off © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 15

– Du. Pont-Conoco • Du. Pont bought Conoco in 1981 • On May 12, – Du. Pont-Conoco • Du. Pont bought Conoco in 1981 • On May 12, 1998, Du. Pont announced it would divest itself of 20% of its Conoco oil subsidiary and subsequently spin-off remainder • In initial IPO, Du. Pont sold 150 million A shares which carried one vote • Spin-off of remainder of Conoco was accomplished by a share exchange in which for each share of Du. Pont stock, holder could receive 2. 95 shares of class B stock of Conoco • Class B stock was identical to class A stock except that each share carried 5 votes • GM paid Delphi's shares as a dividend; to obtain Conoco shares, Du. Pont shareholders had to exchange their Du. Pont shares • Share exchange method allowed Du. Pont's shareholders to choose whether they wanted to invest in the chemical industry versus petroleum industry © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 16

 • Carve-out event returns – Market reaction not easily predictable since equity carve-outs • Carve-out event returns – Market reaction not easily predictable since equity carve-outs have characteristics in common with spin-offs, divestitures, and seasoned equity issues • Spin-offs — abnormal returns to parent firm of 23% on average • Divestitures — gains to selling firm of 1 -2% on average • Seasoned equity issues — negative residuals of 2 -3% on announcement – Event returns +2 - +5% © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 17

 • Performance studies of carve-outs – Vijh (1999) • Compared performance of carve-outs • Performance studies of carve-outs – Vijh (1999) • Compared performance of carve-outs to several benchmarks — carve-outs did not underperform benchmarks • Carve-outs earned an annual raw return of 14. 3% during first three years — contrast to poor performance of IPOs which have annual return of 3. 4% • Average initial listing-day returns for carve-outs of 6. 2%, with median of 2. 5% — much smaller than 15. 4% for IPOs © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 18

 • Possible performance explanations – Parent firms tend to be relatively unfocused — • Possible performance explanations – Parent firms tend to be relatively unfocused — carveouts are an opportunity to improve focus – Subsidiaries gain partial freedom to pursue own activities – Allen (1998) • Examined performance of equity carve-outs at Thermo Electron • Thermo Electron has performed well since program implementation – $100 invested in firm in 1983 would have appreciated to $1, 667 by end of 1995 – Contrast to industry index which grew to $524, and S&P 500 which grew to $381 © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 19

Tracking Stock • Tracking stocks are separate classes of common stock of parent corporation Tracking Stock • Tracking stocks are separate classes of common stock of parent corporation • First issued in 1984 by GM in connection with its acquisition of EDS • Also known as letter stock, targeted stock, and designer stocks © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 20

 • Company's business operations are split into two or more common equity claims, • Company's business operations are split into two or more common equity claims, but businesses remain as wholly owned segments of single parent • Each tracking stock is regarded as common stock of consolidated company and not of subsidiary • Tracking stock company is usually assigned its own distinctive name © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 21

 • Tracking stock trades separately from parent company so that dividends paid to • Tracking stock trades separately from parent company so that dividends paid to shareholders can be based on cash flows of tracking company alone • Compensation of tracking company's managers can be based on financial results and stock price of tracking stock • 80% of firms issuing tracking stocks use a dividend process but some firms use the issuance of tracking stock as a source of cash © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 22

 • Comparison to dual-class stock and spinoffs – Dual-class stocks • In dual-class • Comparison to dual-class stock and spinoffs – Dual-class stocks • In dual-class stocks, class A generally has one vote per share versus five or more per share for class B, but class A has higher allocations of dividends • Tracking stock has same voting rights as shareholders who hold stock in parent © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 23

– Spin-off • Similar to spin-off in that financial results of parent and subsidiary – Spin-off • Similar to spin-off in that financial results of parent and subsidiary are reported separately • Different in that spin-off is a separate entity with its own board of directors and shareholders who can vote for board of their separate company but not for the parent • In spin-off, initial assignment of assets and other relationships are defined, thereafter they are independent entities • In tracking stock, board of parent continues to control activities of tracking segment © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 24

 • Benefits and limitations – Benefits • Tax-free issuance • Financial markets can • Benefits and limitations – Benefits • Tax-free issuance • Financial markets can value different businesses based on their own performance • Analysts' coverage likely to be improved • Stock-based management incentive programs can be related to each tracking business unit • Investors are provided with quasi-pure play opportunities • Increase flexibility in raising equity capital • Provides alternative types of acquisition currency © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 25

– Limitations • Tracking stock subsidiary is generally subject to will of parent • – Limitations • Tracking stock subsidiary is generally subject to will of parent • Potential conflict of interest over cost allocations or other internal transfer transactions • Tracking stock subsidiary may command less takeover interest because of blurred relationship with parent © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 26

 • Price performance – Main determinant is economic characteristics of businesses in which • Price performance – Main determinant is economic characteristics of businesses in which tracking stock subsidiary have been established – Combined parent/tracking stock performance has been, with exceptions, superior to performance of their peer groups © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 27

Split-Ups • Companies split into two or more parts • Accomplished usually by initial Split-Ups • Companies split into two or more parts • Accomplished usually by initial carveouts, followed by spin-offs of individual parts © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 28

 • Examples – Hewlett-Packard and Agilent • Bring more focus • Avoid overlap • Examples – Hewlett-Packard and Agilent • Bring more focus • Avoid overlap of capabilities – AT&T restructuring • Avoid conflicts from AT&T’s role as supplier and competitor in long distance business • Improve valuation multiples for core business – ITT Corp • Attempt to improve share price • Separate poor performers • Resulted in takeover © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 29

Rationale for Gains to Sell-Offs and Split-Ups • Information – Subsidiary true value hidden Rationale for Gains to Sell-Offs and Split-Ups • Information – Subsidiary true value hidden – Preference for pure-play (single-industry) securities – Increased availability of information © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 30

 • Managerial efficiency – Management's inability to manage complex organizations – Sell-offs sharpen • Managerial efficiency – Management's inability to manage complex organizations – Sell-offs sharpen focus, get rid of poor fit subsidiaries, eliminate negative synergy © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 31

 • Management incentives – Bureaucracy and consolidation of financial statements stifle entrepreneurial spirit • Management incentives – Bureaucracy and consolidation of financial statements stifle entrepreneurial spirit — hide good (bad) performance – Conflict of objectives between parent and subsidiary – Tie compensation directly to subsidiary performance © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 32

 • Tax and/or regulatory factors – Subsample of spin-offs citing tax benefits have • Tax and/or regulatory factors – Subsample of spin-offs citing tax benefits have higher abnormal returns – Tax motives — subsidiaries can take forms that shelter income – Regulatory motives — spin-offs can free parent from regulatory scrutiny © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 33

 • Bondholder expropriation – Spin-off reduces bondholder collateral – Unsupported by evidence • • Bondholder expropriation – Spin-off reduces bondholder collateral – Unsupported by evidence • Bondholders can anticipate spin-offs and write protective covenants • Subsidiaries have their own debt or take on a pro rata share of parent debt • Bondholders may benefit if junior debt of parent becomes senior debt of subsidiary • No evidence of bond price or ratings decline at spin-off announcements © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 34

 • Changing economic environment – Major shifts in economic environment alter parent and • Changing economic environment – Major shifts in economic environment alter parent and subsidiary opportunity sets such that separate operations become optimal • Avoiding conflicts with customers – Spin-off can deal more effectively with customers – Spin-off can avoid conflict if customer is a competitor of parent firm © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 35

 • Provide investors with pure winners – Separate segments that lower valuation multiple • Provide investors with pure winners – Separate segments that lower valuation multiple on overall company • Option creation – Common stock is an option on underlying technology of firm – Spin-off creates two options on same assets, therefore more value © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 36

 • Increase market spanning – Expanded opportunity sets to appeal to different investor • Increase market spanning – Expanded opportunity sets to appeal to different investor clienteles – Improve completeness of markets — increased number of securities for given number of possible states of the world • Enable more focused mergers – Facilitate more focused mergers where bidder is interested in only a subset of target assets © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 37

The Choice of Restructuring Methods • Spin-offs – Parent's potential position to create value The Choice of Restructuring Methods • Spin-offs – Parent's potential position to create value through skills, systems, or synergies is weak – Parents and subsidiaries have conflicts of interest © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 38

 • Equity carve-outs – Firms can easily separate subsidiaries – Bring added attention • Equity carve-outs – Firms can easily separate subsidiaries – Bring added attention to subsidiaries with high margins and growth – Provide capital for acquisitions or other investments – Allow division managers to take primary responsibility for financing and investment decisions © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 39

– Subsidiaries may have better access to capital • Take advantage of parent's debt – Subsidiaries may have better access to capital • Take advantage of parent's debt rating • Seek funding from capital markets instead of overstating budgeting needs to parent – Fund projects that otherwise would depress parent's earnings © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 40

 • Tracking stocks – Provide capital for acquisition or other investment programs – • Tracking stocks – Provide capital for acquisition or other investment programs – Bring attention to subsidiaries with high growth or margins – Subsidiaries can take advantage of capital structure of parent – Reduce taxes — net operating losses of parent or subsidiary can be used to reduce overall corporate taxes – Useful for firms with divisions that share significant synergies so full separation not desirable © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 41

– Limitations • Parent still controls • Potential conflicts of interest with parent • – Limitations • Parent still controls • Potential conflicts of interest with parent • Value depends on its performance © 2001 Prentice Hall Takeovers, Restructuring, and Corporate Governance, 3/e Weston - 42