Showing papers on "Divestment published in 2002"

Divestitures and Divisional Investment Policies

Abstract: We study a sample of diversified firms that alter their organizational structure by divesting a business segment. These firms experience a reduction in the diversification discount after the divestiture. We show that the efficiency of segment investment increases substantially following the divestiture and that this improvement is associated with a decrease in the diversification discount. Our results support the corporate focus and financing hypotheses for corporate divestitures. We demonstrate that inefficient investment is partly responsible for the diversification discount and show that asset sales lead to an improvement in the efficiency of investment for remaining divisions.

International retail divestment

Abstract: The divestment of international retail operations is an under‐explored area of research. Conceptual and theoretical developments within retailing have tended to focus on those organisations that have sustained international development rather than on those organisations who have experienced market failure and strategic withdrawals from international markets. The paper discusses two prominent UK cases where market withdrawal has been a feature of international activity. A cross‐case analysis is then used to identify issues for further research activity. In particular, the cross‐case analysis uses the existing constructs that have emerged from the general literature to explain divestment activity while highlighting the limitations of using these constructs within the retail sector. The paper concludes by noting the limitations of existing frameworks that seek to explain the internationalisation process without due consideration of the divestment process.

Divestiture: strategy's missing link.

Abstract: Although most companies dedicate considerable time and attention to acquiring and creating businesses, few devote much effort to divestitures. But regularly divesting businesses--even good, healthy ones--ensures that remaining units reach their potential and that the overall company grows stronger. Drawing on extensive research into corporate performance over the last decade, McKinsey consultants Lee Dranikoff, Tim Koller, and Antoon Schneider show that an active divestiture strategy is essential to a corporation's long-term health and profitability. In particular, they say that companies that actively manage their businesses through acquisitions and divestitures create substantially more shareholder value than those that passively hold on to their businesses. Therefore, companies should avoid making divestitures only in response to pressure and instead make them part of a well-thought-out strategy. This article presents a five-step process for doing just that: prepare the organization, identify the best candidates for divestiture, execute the best deal, communicate the decision, and create new businesses. As the fifth step suggests, divestiture is not an end in itself. Rather, it is a means to a larger end: building a company that can grow and prosper over the long haul. Wise executives divest so that they can create new businesses and expand existing ones. All of the funds, management time, and support-function capacity that a divestiture frees up should therefore be reinvested in creating shareholder value. In some cases, this will mean returning money to shareholders. But more likely than not, it will mean investing in attractive growth opportunities. In companies as in the marketplace, creation and destruction go hand in hand; neither flourishes without the other.

Corporate Governance, Strategy and Structure in British Business History, 1950-2000

Abstract: This article examines why British firms adopted diversification strategies and multi-divisional structures in the middle of the twentieth century and why this strategy and structure was reversed towards the end. Corporate governance mechanisms and the impact on information costs of such monitoring arrangements are considered in conjunction with strategy and structure to explain these changes. Diversification and multi-divisional adoption were associated with ineffective governance, poor monitoring and poor performance, whilst refocusing and divestment after 1980 were associated with more effective monitoring and improved performance. The evidence suggests important relationships between governance, strategy and business performance that help explain the development of British business institutions in the second half of the twentieth century.

Value creation from equity carve-outs

Abstract: Using a large sample of equity carve-out events during the 1980s and 1990s, we find that rivals of carve-out parent firms display negative announcement-period returns. This finding distinguishes the divestiture gains hypothesis from the asymmetric information hypothesis. Additional tests provide further support for the divestiture gains hypothesis. Operating performance improvements for both parents and their carved-out subsidiaries are evident.

The significance of sell-off profitability in explaining the market reaction to divestiture announcements

Abstract: Previous research on asset sales has emphasized the divestment motivation and the use of the proceeds from the sale as determinants of selling firm value gains. In contrast, this paper explores the extent to which the relevant information necessary to evaluate sell-offs is embodied in the profitability of the sale, i.e. the price received by the seller over the value-in-use of the divested assets, where the latter is a function of past operating earnings and book value. Our empirical results show that sell-off profitability is substantially more significant in explaining the market reaction to divestiture announcements than the previous literature has suggested. We provide strong evidence of a positive relation between selling firm abnormal returns during sell-off announcements and profit on the sale, which remains significant after controlling for the motivation behind the sell-off, the use of the proceeds from the sale and the presence of agency costs of managerial discretion. We conclude that sell-off profitability explains a major portion of selling firm abnormal returns and is one of the most significant determinants of the market reaction to divestiture announcements.

Creative Destruction: Business Survival Strategies in the Global Internet Economy

Abstract: From the Publisher: More than fifty years ago, Joseph Schumpeter stated that processes intrinsic to a capitalist society produce a "creative destruction," whereby innovations destroy obsolete technologies, only to be assaulted in turn by newer and more efficient rivals. This book asks whether the current chaotic state of the telecommunications and related Internet industries is evidence of creative destruction, or simply a result of firms, governments, and others wasting valuable resources with limited benefits to society as a whole. In telecommunications, for example, wireless, IP, and cable-based technologies are all fighting for a share of the market currently dominated by older, circuit-switched, copper-terminated networks. This process is accompanied by mergers, acquisitions, bankruptcies, and investment and divestment in worldwide markets. The selections discuss the primary challenge facing firms, governments, and other players: how to exploit the opportunities created by such destructive dynamics. They highlight the importance of national regulations promoting competition and nonmonopolistic market structures, as well as the role of new technologies such as the Internet in driving down the price and speeding the diffusion of innovative products and services in telecommunications, media, electronic retailing, and other "new economy" industries.

Private infrastructure : a review of projects with private participation, 1990-2001

Abstract: Drawing on the World Bank's private participation in infrastructure project database, this note reviews developments in 2001 and summarizes trends in 1990-2001. Data for 2001 show that total investment in projects with private participation was US$57 billion back to 1995 levels and 150 projects reached financial closure. Between 1990 and 2001, 132 low- and middle-income countries introduced private participation in infrastructure sectors 57 of them in three or four sectors. During that period the private sector took over the operating or construction risk, or both, for almost 2,500 infrastructure projects in developing countries, attracting investment commitments of more than US$750 billion. Those projects have been implemented under schemes ranging from management contracts (with or without investment commitments) to divestitures to build-operate-own or build-operate-transfer contracts for greenfield projects with merchant facilities.

Regulatory Framework in Pakistan (The Presidential Address)

Abstract: I. INTRODUCTIION Until the mid-1970s, governments all over the world (especially in the developing economies), intervened in markets on the pretext of market failure arising from externalities, decreasing cost industries, and equity considerations for maximising social welfare. In Pakistan, where the private sector has played a dominant role, except probably for the 1970s, 1 private sector activities have all along been regulated through various types of controls and regulations on entry and exit, prices, credit, foreign exchange, imports, investments, etc. These regulations were imposed with a view to ensuring that private sector allocations were in accordance with the national priorities [see Pakistan (1983-84)]. However, the objectives were rarely realised and, in fact, these regulations have been responsible for red-tapism and corruption. On the grounds of government failure, privatisation and deregulation policies are being practised almost everywhere in the hope that they would help in efficient allocation of resources and higher levels of productivity. Considerable regulatory reforms have also been effected in Pakistan over the last two decades. Investment and import licensing have been withdrawn, most of the foreign exchange restrictions have been removed, capital market regulations have been simplified, price controls have been lifted, and interest rates have been deregulated. However, there is considerable room for further regulatory reforms. Similarly, various public enterprises in the manufacturing and financial sectors have been privatised, telecommunication, airlines, and energy firms have been partially divested, and the government has an ambitious privatisation programme of divestiture in various other fields. The main force behind the process of privatisation is the need to address the problems of mismanagement of resources, overstaffing, inappropriate and costly investments, poor quality of services, and heavy losses of various public enterprises.

How Governments Privatize: The Politics of Divestment in the United States and Germany

Abstract: List of Figures and Tables List of Abbreviations Preface and Acknowledgements Prologue 1. Introduction: How the Resolution Trust Corporation and the Treuhandansalt Managed the Sales of the Century 2. Bureaucratic Outputs 3. Personnel, Culture, and Organizational Structure: The Impact of Administrative Characteristics on the Performance of the RTC and THA 4. Structured Choices and Consequences 5. The Impact of Task Environment on Performance 6. The Impact of National Institutional Environments 7. Stragetic Bureaucracies and Their Consequences Appendix -- Interviews References Index

Privatisation failures in Indonesia

Abstract: Despite repeated commitments by successive governments in Indonesia to divestment of state-owned enterprises, little has occurred. There has been considerable experimentation with a different kind of privatisation, however, involving reforms that opened up markets previously dominated by state firms to the private sector. The spectacular failure of some of these experiments has weakened the appeal of privatisation. It is argued here that these disappointments do not reflect any conceptual shortcoming of privatisation as a means of improving efficiency, but are attributable to moral hazard resulting from the failure to ensure that business risks were shifted into the private sector along with ownership.

Divest Investment Banking from Financial Institutions

Abstract: Congress must be applauded for the corporate governance reforms enacted in Sarbanes-Oxley Act of 2002, although some areas involving Banks and Brokerage houses need further reform. This paper argues that we need to cancel the spirit of the 1999 repeal of the 1933 Glass-Steagall Act by forcing Banks and Brokerages to divest their investment banking divisions. The repeal was justified in 1999 during the bubble phase of the stock market on the grounds that the Glass-Steagall Act was outdated in the era of the Internet and new derivative financial instruments. In light of Enron and numerous accounting scandals we argue that a divestiture of financial institutions will benefit (i) the stockholders of financial institutions, (ii) employees of financial institutions, (iii) stockholders of other corporations, (iv) management of other corporations, and (v) general public. It will curb some powers of the top management of financial corporations, and hence we expect them to oppose any breakup. We ague that the divestiture will be simpler, low cost and much easier to enforce than complex "Chinese Wall" type separations and self regulations proposed by the top management of financial corporations. Divestiture will remove a basic conflict of interest embedded in their structure. It will let SEC focus on finding the crooks and not get bogged down in micromanaging internal memos going back and forth within financial institutions.

Biotechnology and the UK 2000-2005: Globalisation and Innovation

Abstract: This paper discusses some selected topics seen as being most important in currently affecting the development of biotechnology in the UK. The importance of demand side factors such as the role of professional experts, regulatory bodies, retailers, public opinion and political activity in stimulating or discouraging innovation in biotechnology is discussed. Supply side factors are then analysed, particularly the major changes in the organizations which generate biotechnology innovations - especially collaborative alliances and network firms, and the restructuring of the chemical, pharmaceutical and agro-food industries which use biotechnology, via merger, acquisition, demerger and divestment. Two important aspects of the infrastructure for innovation, which are rapidly changing and generating debate and concern, are then considered. These are intellectual property regimes on the one hand, and corporate governance and the sources of finance for investment on the other. The issue of globalization of innovati...

The operational hedging properties of intangible assets: the case of non-voluntary foreign asset selloffs

Abstract: In this paper we examine the valuation effects and long-term performance of US multinational firms involved in forced transfers of their foreign operating assets during the 1965‐88 period. The evidence suggests that the operational hedging ability of the firm to address country risk (nationalization threats) is related to the level of its intangible assets. While it is well known that firms with high levels of intangible assets prefer foreign direct investment, our results show that intangible assets have hidden properties of protection against country risk as well. We document significantly negative abnormal returns only for divesting firms with low levels of intangible assets, but not for firms with high levels of intangible assets. In addition, we show that low (high) growth firms are involved in partial (complete) withdrawals, and show that the long-term economic performance of firms choosing the complete withdrawal strategy is better than those that opt to remain. We argue that management’s attempt to maintain economic links in a hostile foreign environment can be attributed in part to the firm’s low growth opportunities, performance, and lack of contingent plans to address country risk. I. Introduction The period between 1960 and 1980 witnessed a spate of forced nationalizations of US based multinationals. It is generally believed that this type of action by a host country represents an extreme form of country risk and constitutes “bad news” for firms with operations in hostile host countries. Consequently, one should expect share prices of such firms to drop when such announcements are first made. Share price declines would be consistent with market expectations of deteriorating firm performance following the forced foreign divestiture announcement. However, in this paper, we provide evidence that is not entirely consistent with this conjecture. Even though firms are unlikely to be subject to such a severe form of country We are grateful to Mark Flannery, Paul Seguin and Rene Stulz, and two anonymous referees for their helpful comments.

Value Creation from Equity Carve-Outs

Abstract: Using a large sample of equity carve-out events during the 1980s and 1990s, we find that rivals of carve-out parent firms display negative announcement-period returns. This finding distinguishes the divestiture gains hypothesis from the asymmetric information hypothesis. Additional tests provide further support for the divestiture gains hypothesis. Operating performance improvements for both parents and their carved-out subsidiaries are evident.

Divestment, Entrepreneurial Incentives and the Decision to go Public

Abstract: This paper develops a theory of the life cycle of the firm based on incentive constraints.The optimal sale of the firm is restricted by entrepreneurial moral hazard and a lack of commitment regarding future divestment.This leads to a dynamic inefficiency that causes the entrepreneur to delay and to stagger the sale of the firm.The analysis provides a common explanation for a range of empirical phenomena related to initial public offerings (IPO's), such as the waiting time until firms go public, lock-up periods, operating underperformance of IPO's and post-IPO divestment.The equilibrium divestment process is shown to be (constrained) inefficient: entrepreneurs sell too late and too much of the firm.Recommendations for financial regulation that restore efficiency are derived.

Public Enterprise Divestment: Australian Case Studies

Abstract: This latest conffibution to the privatisation debate from Roger Wettenhall and his associates affiliated with the Pacific Institute of Management provides an anthology of nine case studies of public sector divestments in Australia between the mid1980s and midI 990s. While the authors readily acknowledge that there are few stones unturned when it comes to academic accounts of privatisation in Australia and abroad, they make the valid point that much of the existing literature tends to be general in nature and overlooks the specific context and dynamics of particular privatisation events. Given the need for more grounded research capable of shedding light on the diversity of divestment experiences, the authors select a range of examples, from the well documented public float of GIO Australia, to the less newsworthy sales of the Sydney Fish Market and the NSW Grain Corporation. The common thread among these accounts is a desire to place each of the case studies in historical context and where possible, to comment on the postprivatisation performance of the transformed enterprises with a view to providing a longitudinal assessment of the divestment processes.

Canadian Acquisitions of U.S. Divested Assets

Abstract: This paper investigates the impacts on both the selling and acquiring firms in cross-border divestiture transactions between U.S. and Canadian firms. This research addresses questions regarding the degree of synergy resulting from these transactions and the extent to which Canadian and U.S. firms benefit from these sales. The empirical analysis in the paper examines 62 U.S. firms, which sold units to Canadian firms over the 1980-1995 interval, 32 Canadian firms that were acquirers in those transactions, and a subsample of 23 matched-pairs transactions. The methodology employed includes both percentage and dollar abnormal returns. We find gains to U.S. divestor/selling firms of similar magnitudes to those in prior studies of sell-offs by U.S. firms. The gains to Canadian acquirers are larger than those previously identified for buyers in domestic sell-offs. These gains are both economically material and statistically significant. However a wide range of outcomes is observed, particularly for sellers. JEL: F3 Keywords: Corporate restructuring; Cross-border divestitures; Abnormal returns I. INTRODUCTION During the past decade, numerous studies have examined the motives underlying corporate restructuring and its consequences. This literature reflects the increasing use of restructuring strategies internationally and a desire by both researchers and practitioners to better understand the causes and implications of this activity. We extend earlier research into the motivations for, and consequences of, various restructuring strategies and the involvement of firms in sell-offs. While sell-offs are conceptually the simplest form of restructuring, existing research has not yet provided a complete analysis of this activity in the international and cross-border arena. The purpose of this study is to examine the valuation consequences for U.S. divesting firms and Canadian acquiring firms of engaging in cross-border divestitures, and to consider policy and strategic issues associated with these transactions. These two neighboring economies are clearly prominent in matters associated with international economics and finance. There is a greater volume of international trade between the U.S. and Canada than between any two other countries. Along with this flow of commerce comes a high level of Foreign Direct Investment (FDI). Corporate acquisitions (including the purchase of units divested by foreign firms) comprise one of the major channels for FDI. Given the extent of both Canadian/U.S. commerce in general and FDI in particular, it is not surprising that sell-offs frequently involve one firm in Canada, and another in the U.S. Only recently has this link between FDI, restructuring, and corporate acquisitions been formally recognized in the research literature. (1) This paper contributes to the nascent literature on international restructuring by conducting a systematic investigation using cross-border Canadian/U.S. divestitures. We first examine the question; "Do Canadian purchases of U.S. divested assets create shareholder wealth?" Once we get an answer to this question, we then explore the following questions: 'Are Canada/U.S. cross-border asset sales different from purely domestic ones? and "How are the gains from divestitures shared between U.S. sellers and Canadian buyers?" The remainder of the paper is organized as follows. Section II reviews the relevant literature. Testable hypotheses are developed in Section III. Section IV addresses empirical dimensions of the paper, including the sample examined, data employed, and methodology used. Section V reports and interprets the empirical results, with a summary and conclusion in Section VI. II. BACKGROUND AND LITERATURE REVIEW Numerous studies have focused on the motives and valuation effects of primarily domestic sell-offs as a vehicle for corporate restructuring. Examples include Datta and Datta (1996, 1995), Lang, Poulsen, and Stultz (1995), Kaplan and Weisbach (1992), Kaplan (1989), Hite, Owers and Rogers (1987), Klein (1986), Jain (1985), Alexander, Benson and Kampmeyer (1984), and Rosenfeld (1984). …

Foreign Direct Investment Opportunities and Strategies in Japan

Abstract: Japan is a wealthy nation and possesses the second largest economy in the world along with the largest pool of personal savings and foreign exchange reserves. Yet its stock markets have been in nothing less than a depression for over a decade. This article looks at several opportunities for foreign direct investments in Japan. Among the sources of opportunities are: divestitures of noncore operating units; investments in financially troubled enterprises; the establishment of partnerships to refinance and reengineer the operations and global reach of existing Japanese companies; and investments in small and medium-sized high-technology companies.

Clean Break - Divestitures and Demergers

Abstract: Divestitures and demergers are currently receiving significant press. Over the past few years there have been some significant transactions. For example during 2013, News Corporation has split its’ broadcasting and film assets into 21 Century Fox and publishing assets into news Corporation. Brambles demerged its information management business into a newly listed company, Recall Holdings, while Amcor demerged and listed its Fibre and Beverage packaging business creating the new company Orora. In 2012 Tabcorp demerged its casino operations into Echo Entertainment and in 2011 beer company Fosters split out its wine operations into listed entity Treasury Wines. These spin-offs are likely to continue. Tesltra recently announced it has sold a majority interest in Sensis, its’ directory arm, to a private equity firm. In 2013, engineering company UGL announced plans to demerge its’ DTZ property services business by 2015. Orica management is reviewing its’ non-mining chemical business after the demerger of paint business Dulux in 2010. Options to spin-off the customer loyalty program and/ or separate the domestic and international operations of the Australian airline Qantas have received significant speculation. Companies divest subsidiaries, business units and departments for many strategic reasons. However, breaking up can be hard to do. Preparing both the parent organisation and the to-be divested organisation for split often involves substantial effort and many difficult decisions. While many divestitures are performed to improve management focus, ironically the divestiture process often diverts management focus. The work often continues after the divestiture has taken place and can have substantial impact on the remaining part of the company and the people within it. The tasks involved in pre-divestiture preparation and post divestiture clean up can differ substantially depending on the role of the divested entity in the group, the level of integration across business units and the method of divestiture. In fact, demergers can be one of the most difficult divestment methods, especially when the demerging businesses are intertwined prior to separation. This article outlines some of the critical operational tasks involved in the split, indicates the complexity of different divestment methods and provides suggestions to successfully manage a divestment/ demerger.

Impactos sociais do desinvestimento [Social Impacts of divestment]

Abstract: The resulting economic integration of industrial processes and manufacturing internationalisation lead several authors to argue that world economy is globalised. In this context, the approach to the divestment concept without an social and economical context, does not show a group of associated practices and representations. Choices and options are motivated by exogenous forces that pushes companies to determine strategies that stop capital investment on new equipment goods, or on other imaterial goods. This type of strategy is designated by "divestment". The social level of consequencies are not due to the closing down or de-localization of production units that are divesting, but can be materialised of efects that are irreversible. This means unemployment, de-skilling, labour precarization and even emergence of new forms of social exclusion in former industrialised regions.

Do Entrepreneurs Make Predictable Mistakes? Evidence from Corporate Divestitures

Abstract: While characteristically ‘Austrian' themes such as entrepreneurship, economic calculation, tacit knowledge and the temporal structure of capital are clearly relevant to the business firm, Austrian economists have said relatively little about management, organization, and strategy. This innovative book features 12 chapters that all seek to advance the understanding of these issues by drawing on Austrian ideas.

Vertical Integration Versus Infrastructure Separation for Railroads: Different Optimums for Different Settings?

Abstract: Open access is sometimes seen as promoting rail competition effectively when infrastructure geography and market demand restricts routings — e.g. in Europe. European railways are passenger-oriented, highly scheduled, poorly standardized, and lines serve specialized functions. Conversely, American railroads are freight-oriented, flexible, and highly standardized. Consequently, optimal forms of organization differ. American railroads compete vigourously for through-traffic, and seek efficiency gains through competition and mergers. European railways are focused on local traffic, and are consolidated on a national basis. The technical, cultural, national and corporate incompability between European national systems precludes vertically-integrated parallel competition as a solution, requiring the operational complexity of infrastructure separation to create a pan-European network. However, American railroads, with some mandated infrastructure divestment, may compete positively, yet generate value effectively through creative inter-modal cooperation as true transportation retailers, without resorting to open access. Efficient organizational structure will ensure rail’s survival through the 21st Century.

Conceptual Model for Private Equity Markets: Proposal and Empirical Test on Fundraising

Abstract: The absence of a theoretical basis that could explain capital flows within private equity markets has prompted us to seek a general explanation for the process that could be applied to any given country. In our opinion, the interaction between supply and demand is directly affected by four conditions, basically: the size of the domestic market, the accessibility of a stock market for growing companies, the existing regulations on capital gains taxation and the social climate regarding entrepreneurial activity. The conceptual model presented here has been partially tested with a sample of 16 European countries during the period from 1987 to 2000 and using panel-data techniques. The authors examine the factors, both environmental and industrial, that explain, in aggregate terms, the growth of new funds raised for private equity investments in Europe since the late-eighties. In addition to the identification of environmental factors, such as the creation of a new stock market or the recently-gained access to one, we also provide a measure of the rigidity of labour markets, focusing on the aggregated investment and divestment activities recorded in the past. The authors find that the amounts invested and successfully divested in the previous year, plus the existence of a market for growing companies, have positive and significant impacts on fundraising. When the variable divestment is substituted with four different exit possibilities, only divestments through sales to a third party is significant, and it is hardly coincidental that this has always been the most common way of exiting in Europe. The results obtained here are also consistent with the theoretical model proposed.

Reinventing The Hierarchy, The Case Of The Shell Chemicals Carve-Out

Abstract: textThis paper reports on a major portfolio restructuring at Shell. The restructuring involved the divestment of a significant part of Shell?s highly integrated chemical business. We study this event and -particularly- the related control issues, using Transaction Cost Economics (TCE) as our basic frame of reference. Our analysis shows that many of the problems encountered by Shell in this process are strongly related to asset specificity and the need for adaptive mutual coordination and integration. In a situation in which asset specificity is high and where adaptive responses are important, TCE reasoning suggests internal (hierarchical) governance to prevail because of its superior ability to foster coordinated adaptation. Shell, however, opted for hybrid control. But our analysis demonstrates that the new, intendedly hybrid structure mimics the hierarchy in almost all fundamental respects, and that it functions in an intrinsically hierarchical way. These findings are in line with TCE, and our study provides an illustration of the relevance of TCE in making sense of control.

International Corporate Divestment Theory and its Latest Development

Abstract: In order to adapt themselves to the changes of international b usiness environments and market conditions, transnational corporations have to reconfigu re the structure of foreign investment. Divesting or decreasing investment in ex isting host country is an integral part of transnational corporations' global st rategies, just like maintaining or increasing investment in another one. The tim ely strategy of divestment may help the divestor optimize resource allocations a nd restore or strengthen the competitive advantages. The authors analyze and exp ound international corporate divestment theory and its latest development.

Business services in the transitional economy of the Czech Republic

Abstract: The business services sector (in broad sense: NACE Section J and K) has played a crucial role in the Czech economy transformation (after 1989), especially in its restructuring and in the divestiture of the state owned assets. This services support the processes of creation of credit institutions replacing the former system of a single central credit institutions and of inter-enterprise payments based of planned assignments and the transformation of state owned enterprises (SOEs) into independent, market-oriented firms and especially by the promotion of small and medium enterprises (SMEs).