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Chapter_15 - Alternative Restructuring Strategies Course...

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Alternative Restructuring Strategies
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Course Layout: M&A & Other Restructuring Activities Part IV: Deal Structuring & Financing Part II: M&A Process Part I: M&A Environment Payment & Legal Considerations Public Company Valuation Financial Modeling Techniques M&A Integration Business & Acquisition Plans Search through Closing Activities Part V: Alternative Strategies Accounting & Tax Considerations Business Alliances Divestitures, Spin-Offs & Carve-Outs Bankruptcy & Liquidation Regulatory Considerations Motivations for M&A Part III: M&A Valuation & Modeling Takeover Tactics and Defenses Financing Strategies Private Company Valuation Cross-Border Transactions
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Learning Objectives Primary Learning Objective: To provide students with an understanding of alternative exit and restructuring strategies. Secondary Learning Objectives: To provide students with an understanding of Divestiture, spin-off, split-up, equity carve-out, split-off, and tracking stock strategies Criteria for choosing strategy for viable firms
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Divestitures Sale of a portion of the firm to an outside party generally resulting in a cash infusion to the parent. Most common restructuring strategy. Motives: De-conglomeration / Increasing Corporate Focus Moving away from the core business Assets are worth more to the buyer than to the seller Satisfying government requirements Correcting past mistakes Assets have been interfering with profitable operation of other businesses
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Deciding When to Sell: Financial Evaluation of Divestitures 1. Estimate unit’s after-tax cash flows viewed on a standalone basis, carefully considering dependencies with other operating divisions 2. Determine appropriate discount rate 3. Calculate the unit’s PV to estimate market value 4. Calculate the equity value of the unit as part of the parent by deducting the market value of liabilities 5. Decide to sell or retain the division by comparing the market value of the division (step 3) minus its operating liabilities (step 4) with the after-tax proceeds from the sale of the division.
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