Chapter 16

Corporate Restructuring: Breakups and LBOs

B. Espen Eckbo    Tuck School of Business at Dartmouth

Karin S. Thorburn    Tuck School of Business at Dartmouth

Abstract

This chapter surveys the empirical literature on corporate breakup transactions (divestitures, spinoffs, equity carveouts, tracking stocks), leveraged recapitalizations, and leveraged buyouts (LBOs). Many breakup transactions are a response to excessive conglomeration and reverse costly diversification discounts. The empirical evidence shows that the typical restructuring creates substantial value for shareholders. The value-drivers include elimination of costly cross-subsidizations characterizing internal capital markets, reduction in financing costs for subsidiaries through ...

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