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CorpFina - Corporate Restructuring Where Are We Going Are...

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Corporate Restructuring, Where Are We Going? Focus: Restructuring through mergers, acquisitions, takeovers, selloffs, spinoffs, hi hl l d i highly-leveraged transactions, or investor activism Theoretical basis: Value Additivity Principle (VAP) • Mergers acquisitions or takeovers Mergers, acquisitions, or takeovers V(A+B) > V(A) + V(B) Selloffs or spinoffs V(A+B) < V(A) + V(B)
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Why the whole might be worth more than the sum of the parts: • Operating synergy Operating synergy Strategic considerations: RCA/NBC example Some questionable reasons for expansion Operating synergy • Common product (economies of scale) Common product (economies of scale) Common market (economies of distribution) Common technology • Less staff overhead Less staff overhead
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Strategic considerations: RCA/NBC example • Project: Color Television • Project: Color Television Time: Early 50s • Problems: – Without broadcasters, no demand for sets – Without installed sets, no incentive for broadcasters • Solution: Merger of RCA and NBC Some questionable reasons for expansion • Pure diversification Pure diversification Financial synergy Target firm “undervalued” – Does market know something you don’t?
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