Page 62 - FINAL CFA II SLIDES JUNE 2019 DAY 6

LOS 25.n: Distinguish among equity carve-outs, spin- READING 25: MERGERS AND ACQUISITIONS
offs, split-offs, and liquidation.
Divestitures refer to a company selling, liquidating, or spinning off a division or subsidiary. MODULE 25.4: BID EVALUATION
Most divestitures involve a direct sale of a portion of a firm to an outside buyer. The selling
firm is typically paid in cash and gives up control of the portion of the firm sold.

Equity carve-outs create a new, independent company by giving an equity interest in a subsidiary to outside shareholders. Shares of the subsidiary are
issued in a public offering of stock, and the subsidiary becomes a new legal entity whose management team and operations are separate from the parent
company.

Spin-offs are like carve-outs in that they create a new independent company that is distinct from the parent company. The primary difference is that
shares are not issued to the public, but are instead distributed proportionately to the parent company’s shareholders. This means that the shareholder
base of the spin-off will be the same as that of the parent company, but the management team and operations are completely separate. Since shares of
the new company are simply distributed to existing shareholders, the parent company does not receive any cash in the transaction.

Split-offs allow shareholders to receive new shares of a division of the parent company in exchange for a portion of their shares in the parent company.
The key here is that shareholders are giving up a portion of their ownership in the parent company to receive the new shares of stock in the division.

Liquidations break up the firm and sell its asset piece by piece. Most liquidations are associated with bankruptcy.

LOS 25.o: Explain common reasons for restructuring.

Division no longer fits into management’s long-term strategy.

Lack of profitability.

Individual parts are worth more than the whole.

Infusion of cash.