Strategic Corporate Finance: Applications in Valuation and Capital Structure

WHAT HAPPENS LONGER TERM?

As discussed earlier, academic studies do support the notion that a portion of value created by divested businesses originated from anticipated takeover premiums.13 But this accounts for only a fraction of the total value created as many divested businesses continue to operate as independent companies. And a significant portion of the value creation can be attributed to documented improvements in operating performance.14

One long-term study of spin-offs found that about half of the divested businesses have survived as viable independent entities.15 The others have been acquired, bought back by the parent, or delisted. The surviving businesses produced the highest returns. And the most successful examples of corporate restructuring transactions are those where the subsidiaries achieve full independence over a fairly short period of time and have maintained that status longer term.

Case Study: Dun & Bradstreet (DNB)

Once a sprawling information conglomerate, Dun & Bradstreet (DNB) initiated a plan in the 1990s to unlock shareholder value through increased focus. The bulk of DNB’s divestitures were completed using spin-off or carve-out/spin-off techniques. Cognizant Technology was divested using a partial public carve-out followed by a complete spin.

Not content to shed businesses, DNB acquired several related businesses. An original DNB investment would have significantly outperformed the S&P500 and led to seven new public company holdings, five of which ...