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Financial and strategic implications of mergers and acquisitions
5.2 Methods of divestment
SELL OFF SPIN OFF
(trade sale) (demerger)
A new entity is created,
where the shares of that
The sale of part of an new entity are owned by
entity to a third party, the shareholders of the
usually in return for
cash. entity that made the
transfer of assets into
the new entity.
 used to protect the  no cash is generated
rest of the business
from takeover, or to  allow investors to
generate cash in a identify the true
time of crisis value of a business
that was hidden
 may disrupt the rest within a large
of the organisation if conglomerate
key staff or products
from within the entity  should lead to a
are part of the clearer management
business unit sold structure
off.
 reduce the risk of a
takeover bid for the
core entity
 may disrupt the rest
of the organisation if
key staff or products
from within the entity
are part of the
business unit sold
off.
MANAGEMENT
BUYOUT (MBO)
Purchase of a business
from its existing owners
by members of the
management team,
generally in association
with a financing
institution.
 loss of head office
support and quality
of the management
team are key
considerations
 several institutions
specialise in
providing funds for
MBOs e.g. venture
capitalists, banks,
private equity firms,
and other financial
institutions.
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