Value Creation Through Spin-Offs

Managers constantly work on their strategic orientation by continuously revising and changing their product portfolio and fields of business. Spin-offs become more and more popular. Not only in the U.S. but also in Europe they represent a major restructuring transaction. There is still not much known about the exact factors that lead to the execution of a spin-off and what effects they might have. Due to the complex legal regulations in Germany as well as other countries in Europe, there have not been as many spin-offs in Germany so far. Most managers only have incentive to grow the company by acquiring new businesses and penetrating new markets with new products and often only restructure the whole company far too little or when it is already too late. They carry a strong bias against divestitures as it restricts their influence and power. Restructuring should be like cutting roses: A part of the everyday proactive business rather than the last resort in a financially distressed situation, under pressure by the capital market or the poor performance of the subsidiary. It is a manager's key task to constantly monitor the business unit or company and even to restructure in order to further enhance their performance. A continuous and reasonable change between acquisitions and sale strengthens the company and also generates additional value, just like with roses. This value creation process is a key element of this work.
This book has the objective to give a closer look at the different instruments for restructuring. Special focus is set on spin-offs: An overview of the definition, key objectives behind it and implications should help to understand why spin-offs are executed and what effects are to expect after spinning-off part of the company. Additional focus is set on the hypotheses that spin-offs create value for the shareholders of the parent company. This work explains the value drivers behind spin-off transactions and how the value is created by going into detail regarding most common mechanisms and models that might explain this creation.