Corporate Finance, 6th Edition

Chapter 42CHOOSING A CORPORATE STRUCTURE

There is nothing immutable or fixed about the organisation of a company. It is capable of adapting to changes in corporate strategy, access to financial resources, and market developments and moods, as well as any ambitions of its controlling shareholders. By way of example, the Schneider Electric group of today focused entirely on energy management and automation, and with 100% control of almost all its subsidiaries worldwide, no longer has anything in common with the Schneider of the early 1980s which was active in the steel industry, the nuclear industry, mechanics, textiles, watchmaking, electricity, and construction to name a few. Most importantly, the old Schneider Electric group (at the time heavily in debt) didn't always have control of these companies and was itself controlled via a myriad of holding companies, indirectly owned by the Schneider family.

Generally speaking, investors like simplicity and transparency, which allows for better understanding and easier valuation, whilst simplifying everyone's life and reducing risk (Schneider today). But markets are pragmatic and they can accept complex structures if growth and profitability are present (Alibaba, Liberty Media, Bollore).

A word of caution to our readers: whilst complex structures might solve certain problems or allow for certain opportunities to be seized, they are rarely without additional costs in the form of discounts and undervaluations. Sooner or later, they ...