1) What is your opinion on creating shareholders value with divestures (Explain)
ID: 2799682 • Letter: 1
Question
1) What is your opinion on creating shareholders value with divestures (Explain)?
2) Give me a real world example of creating shareholders values with divestures?
3) What are some factors driving divestures which vary from industry to industry?
4)What do you think about capital markets rewarding companies that choose divesture process? ( Explain)
5) What deals contribute to the success of Mergers & Acquisitions explain?
6) During Mergers & Acquisitions how does the P/E ratio effect the deal in regards to the Acquires (please explain)?
(7) does the deal size effect the outcome of merger and acquisitions (please explain)?
Explanation / Answer
As per rules, I am answering the first 4 questions
1. While it is true that mergers and acquisitions create shareholder value divestures are equally effective at creating value for shareholders. Divestitures may result in cost saving, profit increase, revenue increase and finally over all value creation. They generally result in improvement in the economies of scale and help in bringing down the cost of production. In general the amount of wealth created due to divestitures depends upon how efficiently the forms utilise the cash flow that is generated. Divesting firms could reap the benefits from a successful corporate restructuring. They could also benefit by selling their assets at a premium
2. Maersk is one example of firm that used divestiture as a means of creating shareholder wealth. By this strategy the company brought more focus to its portfolio and reorganized itself to create 5 business units which had clear roles and accountability.
3. Some factors that vary from industry to industry are
a. Market change
b. Financing needs
c. Lack of talent to grow the business.
4. In my view it is only right that the capital markets reward directors with high evaluations. Divesting acid or the business units that are not efficient or do not fit into the corporate strategy ultimately leads to improvement in the performance of the company's operations. By using divestiture as a strategy the companies are able to improve their profit margins and hence it is only correct that their valuations are revised
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