Set out the kinds of corporate restructuring and why issuers undertake them
The idea
Restructurings fall into three groups. Investment actions add to the company: minority equity investments, joint ventures and acquisitions. Divestment actions shrink it: sales of businesses for cash, and spin-offs, in which a unit's shares go to existing shareholders. Restructuring actions reshape it without changing its scope much: cost programmes, balance sheet changes such as leveraged recapitalisations or sale-leasebacks, and reorganisation under creditor protection. Common motives include pursuing growth or synergies, gaining capabilities or scale, correcting perceived undervaluation such as a conglomerate discount, responding to activist pressure, sharpening strategic focus and improving returns or cutting costs. The trap is labelling a spin-off a sale, which it is not, since no cash comes in.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
Take the free diagnostic →More in Corporate Restructuring
- Explain how a proposed corporate restructuring is first assessed
- Apply valuation methods to companies undergoing corporate restructuring and explain the values that result
- Show the impact of a corporate restructuring on an issuer's EPS, its weighted average cost of capital and its ratio of net debt to EBITDA
- Assess a company's investment moves such as acquisitions, joint ventures and equity stakes in other firms
- Assess how a company divests, whether through a sale or a spin off
- Assess restructurings aimed at costs or at the balance sheet