The motives of the separation of companies and the determinants of their effectiveness: a comparative analysis of developed and developing markets - Дипломная работа

Федеральное государственное автономное образовательное учреждение высшего профессионального образования Национальный исследовательский университет Высшая школа экономики Факультет экономических наук Образовательная программа Экономика БАКАЛАВРСКАЯ ВЫПУСКНАЯ РАБОТА Мотивы разделения компаний и детерминанты их эффективности: сравнительный анализ развитых и развивающихся рынков Выполнил Ильюшкин Феофан Анатольевич Научный руководитель К .э. н., преподаватель Партин Илья Маркович Москва 2016 Table of contents Introduction 1. Theoretical background of studying demergers 1.1 Description of a demerger as a measure of corporate restructuring 1.2 Motives of demergers 1.3 Demerger efficiency and its determinants 2. Methodological issues of studying demergers 2.1 Determining demerger efficiency: major approaches 2.2 Quantification of demerger efficiency determinants 3. Empirical study of corporate demergers determinants 3.1 Hypotheses 3.2 Variables and model 3.3 Data description 3.4 Results 3.5 Limitations and future research Conclusion References Appendix 1. List of spin-offs analyzed Introduction A widely studied in literature and successfully applied in practice life cycle theory suggests that as a firm is ageing and its organic growth opportunities are becoming less apparent and less profitable, in order to sustain growth and not to lose appeal to its stakeholders, the company has to take some restructuring steps. These steps are not usually concerned with the nature of the company’s business, but are rather organizational, however they can be a rather powerful tool in solving strategic corporate problems. One of these measures is aimed and expanding the business by buying other companies - i.e. conducting M&A processes. While highly popular both in practice and research literature, this kind of maturity crisis disease aid turns out to be relatively unsuccessful. Modern studies (Christensen et al., 2011) show that up to 70% M&A’s fail due to some obstacles on the way to corporate integration. The opposite of acquiring new companies in order to expand is divesting from some assets and splitting the initial company into pieces - demerging. Counterintuitively, but this kind of measures is more often associated with increasing corporate efficiency and improving shareholder value. Demergers or spin-offs are associated with turning a company’s subsidiary or set of assets into a separate independent entity and distributing the shares of the new company among the shareholders at pro rata basis. As a measure of corporate restructuring, demergers originated in the US in the 1st half of XX century. The first article dedicated to demerger specificity was Simon (1960). (2011) reports that 70% of mergers end up hurting both companies engaged. Cutting value may be attributed to a variety of reasons such as corporate culture mismatch, unsuccessful implementation of integration plans, ownership related issues, etc. Hence in a short period of time a wise decision for the company’s shareholders could be a separation of the merged entities in order to at least partially restore the destroyed value. But even though mergers and acquisitions are reposted to be unsuccessful in 70% of cases, only a small portion of corporations actually try to spin-off its newly acquired divisions. That could be a consequence of the fact that a demerger tend to be a very costly, long and disturbing process and therefore not all of the companies that experienced repercussions of an adverse acquisition are ready to undergo a spin-off process in order to increase the shareholder value back. Another asset relocation reason for a company to demerge is for its shareholders to remove some of the most valuable assets to a new entity so that the in case of a bankruptcy they would not be expropriated in favor of the creditors. Since this motive is unlikely to be explicitly announced due to its unfairness towards the debt holders, it is only studied to the extent of how certain capital structure parameters (See Mehrotra, Mikkelson & Partch, 2003; Maxwell & Rao, 2003; Dasilas et al., 2011), however the motive as it is still makes sense. We will demonstrate how it can be beneficial for the shareholders to transfer some of their wealth into a separate debt-free entity. And finally, a spin-off can serve as a powerful anti-takeover tool. When a hostile takeover is taking place, the predators are usually targeting some particular strengths of the company that can particularly be employed in the future merged firm. A perfect example of such a demerger is the split of Diamond Shamrock R&M from Diamond Shamrock in 1987 (Gaughan, 2007). However, when the current target shareholders decide to split these particular strengths of the company in a form of concrete assets - crown jewels - its value for the predator becomes far less and the takeover could be avoided. But even though this kind of spin-off can serve as an effective anti-takeover provision, deliber