Title Page

“Corporate restructuring: spin offs, equity carve outs, divestments, share

repurchases, corporate recovery”.

A Thesis Presented:

By
Mudassar Qamar

(MCM 05083112)

To
The Committee on Academic Degrees

In partial fulfillment of the requirements

For a degree with honors

Of M.Com

School of Accountancy and Finance

The University of Lahore
(July, 2010)

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 Signature Page

The Thesis committee for (Mudassar Qamar) Certifies that this is the
approved version of the following thesis:

“Corporate restructuring: spin offs, equity carve outs, divestments, share

repurchases, corporate recovery”.

APPROVED BY
SUPERVISING COMMITTEE:

Supervisor: Usman Saeed

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 Signature Page

The Thesis committee for (Fiaz Hussain) Certifies that this is the approved
version of the following thesis:

“Corporate restructuring: spin offs, equity carve outs, divestments, share

repurchases, corporate recovery”.

APPROVED BY
SUPERVISING COMMITTEE:

Supervisor: Sir, Usman Saeed

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 Dedicated to
My honorable Teachers
For providing the knowledge and
valuable consultancy
And
My beloved parent’s family and
friends
Making my life beautiful and bright
and charming by providing everything
Which am I needed in my life.

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 Acknowledgement

First of all I like to thank to ALLAH who has complete knowledge and
guide me in every field of life and enabled me to complete M.com
thesis. I am heartily thankful to my supervisor Mr.Usman Saeed whose
encouragement, guidance and support from the initial to the final level
enabled me to develop an understanding of the subject.

He inspired us for his brilliant supervision throughout the work

valuable guidance and advice greatly to work in this thesis. I would
also like to express my profound gratitude to Mr. Sarfraz Ahmed for
his constant and valuable suggestions while doing the thesis work.

An honorable mention goes to my family: my parents for giving birth to

me at the first place and supporting me spiritually throughout my life.
Also I thank my friends for their understandings and supports on us in
completing this project. Without helps of the particular that mentioned
above, I faced many difficulties while doing this project.

Lastly, I proffer my regards and blessings to all of those who supported

me in any respect during the completion of the project.

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 Abstract

My thesis concern the process of corporate restructuring. In general, the plan of corporate
restructuring is to allow the business to carry on operation in some manner. Corporate
restructuring involve a significant (and apparently permanent) reduction in the resources
that an organizations allocates to those product markets or process activities or
geographical locations in which it had previously been engaged.

Some methods of corporate restructuring involve corporation in restructuring process. I

defined that in which condition corporations are implemented the methods of corporate
restructuring. Why corporations reorganize or divest less profitable or loss making
business/products. The corporation can also improve value through corporate
Restructuring. I evaluate and defined the importance of corporate restructuring methods
in organizations.

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 Table of Content

Chapter 1
Introduction

1.1Corporate Restructuring 1
1.2 Need for corporate restructuring 1
1.3 Purpose 2
1.4 Characteristic of corporate restructuring 2
1.5 Category of corporate restructuring 3
1.5.1 Financial restructuring 3
1.5.2 Organizational restructuring 3
1.5.3 Portfolio restructuring 4
1.6 Methods of corporate restructuring 5
1.6.1 Joint Venture 5
1.6.2 Spin-offs 5
1.6.3 Spilt off and spilt up 5
1.6.4 Split up 6
1.6.5 Sell-off 6
1.6.6 Divestments 6
1.6.7 Equity carve outs 6
1.6.8 Share repurchases 7
1.6.9 Leveraged Buy outs 7
1.6.10 Management buy outs 7
1.6.11 Master limited partnership 8
1.6.12 Employee’s stock option plan 8
1.7 Research objectives 8
1.8 Research approach 8

Chapter 2
Literature review

2.1 Corporate restructuring in Business corporations 9

Chapter 3
Corporate spin offs

3.1 What are corporate spin-offs? 12

3.2 Key motivation for spin-offs 13
3.3 Corporate spin-offs implication polices 14
3.3.1 Implications for corporate polices 15
3.3.1.1 Executive compensation 15

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 3.3.1.2 Financing policy 15
3.3.1.3Dividend policy 16
3.3.1.4 Other corporate policies 16
3.4 Gain from corporate spin-offs 16
3.4.1 Abnormal returns 16
3.4.2 The ex-day puzzle 17
3.4.3 Tax issues 17
3.5 Reasons for corporate spin-offs 18
3.5.1 The benefits of combining units 18
3.5.2 The costs of combining units 18
3.5.2.1 Focus 18
3.5.2.2 Diversity 18
3.5.2.3 Information asymmetry 19
3.5.2.4 Merger and takeover facilitation 19
3.5.2.5 Regulations 19
3.5.2.6 Wealth expropriation 20
3.6 Corporate Spin-Off Processes 20
3.7 Accounting for corporate spin-offs 22

Chapter 4
Equity carve outs

4.1 What is equity carve outs? 24

4.2 Reasons for equity carve outs 25
4.2.1 Motivation of parent firms 25
4.2.2 Sources of value creation 25
4.3 Differentiating an equity carve-outs from other forms of restructuring 25
4.4 Accounting for equity carve outs 26
4.4.1 Strategic Rationale 26
4.4.2 Tax Implications 27
4.4.3 Accounting for Equity Carve-Outs 28

Chapter 5
Divestments

5.1 What is Divestments? 30

5.2 Reason to divestments 30
5.2.1 Market share too small 30
5.2.2 Availability of better alternatives 31
5.2.3 Need for increased investment 31
5.2.4 Lake of strategic fit 31
5.2.5 Legal pressure to divestments 31
5.3 Implication to divestments strategy 31

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5.4 Motives of divestments 32

Chapter 6
Share repurchase

6.1 What is share repurchase? 33

6.2 Method of share repurchases 33
6.2.1 Fixed price tender offer 33
6.2.2 Dutch auction tender offer 34
6.2.3 Private or target share repurchases 34
6.2.4 Open market share repurchases 34
6.2.5 Repurchases involving derivatives 35
6.3 Objective of share repurchases 35
6.3.1 Unused cash 35
6.3.2 Tax gain 36
6.3.3 Market perception 36
6.3.4 Exit option 36
6.3.5 Increase promotion stake 36
6.3.6 Escape monitoring of accounts and legal controls 36
6.3.7 Show better financial ratio 37
6.4 Dividends vs. Share Repurchase Plans 37
6.4.1 The Facts 37
6.4.2 Function 37
6.4.3 Benefits 38
6.4.4 Considerations 38
6.4.5 Warning 38
6.5 Share repurchases and the protection of Shareholders 38
6.5.1 The United Kingdom 39
6.5.2 Off-market repurchases 39
6.5.3 Market repurchases 39
6.5.4 Repurchases out of share capital 40

Chapter 7
Corporate recovery

7.1 What is corporate recovery? 41

7.2 Need for corporate recovery 41
7.3 Corporate recovery strategies 42
7.3.1 A contingency approach to recovery 42
7.3.2 Management changes 42
7.3.3 Asset reductions 42
7.3.4 Cost reduction 43
7.3.5 Product-market repositioning 43

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 7.3.6 Investment in R&D 44
7.3.7 Acquisitions 44

Chapter 8
Analysis

8.1 Case Study 45

8.2 Corporate Restructuring 46
8.3 Case Study 47

Chapter 9
Conclusion 51

References 53