Business finance : theory and practice

Chapter 14 • Corporate restructuring
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Management buy-outs (MBOs):
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MBO = the sale of part of a business to a group of staff.
Often financed with quite a high level of debt – ‘leveraged’ buy-outs.
Buy-in = a group of people outside the business buys part of a business.
Sell-off = one established business selling part of its operations to another
established business.
Spin-off:
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Spin-off = taking a part of a business, placing it inside a new business and
issuing shares to shareholders in the original business pro rata the number
of shares owned by each.
Usually done for one of two reasons:
l To give the spun-off business its own distinct corporate identity in an
attempt to increase overall shareholder wealth.
l To avoid a takeover of the whole of the business, by placing a particularly
attractive part outside the rest of the business.
Further
reading
Pike and Neale (2006) and Arnold (2005) both give good coverage of most aspects of corporate
restructuring, in a UK context. The Centre for Management Buy-out Research article
Management buy-outs 1986–2006: Past achievements, future challenges (2006), which is available
from the Centre’s website (see below), gives a very readable account of buy-out activity
over the period specified.
Relevant
websites
The Centre for Management Buy-out Research site gives access to up-to-date information on
management buy-ins and buy-outs, including the article mentioned above.
www.nottingham.ac.uk/business/cmbor
The site of the Competition Commission contains access to information on the work of the
Commission and to reports commissioned by it.
www.competition-commission.org.uk
REVIEW QUESTIONS
Suggested answers to
review questions appear
in Appendix 3.
14.1 Is corporate restructuring a good thing for businesses that are pursuing a shareholder
wealth maximisation objective? Explain your response.
14.2 How should shareholders in a ‘target’ logically assess an offer for their shares (on a
share-for-share exchange basis) from the bidder?
14.3 What is the general stance of UK monopolies regulation with regard to mergers and
takeovers?
14.4 What is the difference between a management buy-in and a management buy-out?
14.5 What is the difference between a sell-off and a spin-off?
14.6 Generally, have mergers in the UK been successful?
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