During upswing or boom phases, companies tend to diversify their products and services either by acquisitions or by the foundation of subsidiaries active in different businesses. As the market situation or the overall economic situations change, companies have to adapt their strategy and structure to the current market. If there are changes in the general market situation, e.g. by the entry of new competitors, companies might need to restructure to be able to compete. In times of economic downturns, most companies need to restructure due to economic problems and high in-house costs, caused by high complexity and low transparency within the company.
Moreover, there seems to be a change in paradigms in the market. Whereas in the 60’s (in the US) conglomerates were a prominent way to increase the company value, the current market pays no premium for being a large company. Since the 80’s in the US and the late 90’s in Western Europe, shareholder value rather is increased by a focused approach on core markets and selling or spinning-off the side-businesses. Major spin-offs were conducted in Western Europe during the recent years, e.g. the spin-off of Infineon from Siemens in 1999 which was followed by a listing of Infineon at the Frankfurt Stock Exchange in 2000, the spin-off of Hypo Real Estate from HypoVereinsbank in 2003, freeing the HypoVereinsbank from their difficult real estate financing business and, against the odds, lead to a successful performance of Hypo Real Estate at the Stock Market7or the spin-off of Lanxess from Bayer in 2005. Looking at the current development of the capital market, European conglomerates seem all to work on their restructuring and on their focus on a certain area8. Recently announced or publicly evaluated transactions include e.g. MAN selling the majority of its printing machine division to Allianz Capital Partners, Linde evaluating the sale of theirfork-lift division, Electrolux envisaging the spin-off and listing of their outdoor division in the company„Husqvarna”, to which shareholders consented in April 2006.
In the course of this paper, we will evaluate the motives and value drivers of a spin-off with view on the parent company, the spin-off and the capital market including investors and bondholders.
Inhaltsverzeichnis (Table of Contents)
- 1. Introduction
- 1.1 Introduction
- 1.2 Progress of Examination
- 2. Definition of Spin-off
- 2.1 Consideration of the different forms of relocation according to the German UmwG
- 2.1.1. Split-up (Aufspaltung)
- 2.1.2. Spin-off (Abspaltung)
- 2.1.3. Outsourcing (Ausgliederung)
- 2.2 Definition of the term "spin-off" for this paper
- 2.3 Segregation of other types of relocation
- 2.3.1. Equity Carve-out
- 2.3.2. Buy-out
- 2.3.3. Outsourcing
- 3. Reasons for Spin-offs
- 3.1 Incubator's point of view
- 3.2 Spin-off's point of view
- 3.3 Investor's point of view
- 3.4 Regulatory reasons
- 4. Prerequisites for a spin-off
- 4.1 Structural and Operational Prerequisites
- 4.2 Consent of Shareholders
- 4.3 Communication
- 4.4 Capital Market Transaction
- 5. Increasing Value by spin-offs
- 5.1 Can Value be increased by Realization of a Spin-off
- 5.2 Explanations of Value Enhancement
- 5.2.1. Capital Market Improvements
- 5.2.1.1. Undervaluation of the Subsidiary inside the Conglomerate
- 5.2.1.2. Attracting new Investors
- 5.2.2. Improvements in Organization
- 5.2.2.1. Principal-Agent Theory
- 5.2.2.2. Transaction-Cost Theory
- 5.2.2.3. Property Rights Theory
- 5.2.2.4. Investment Allocation
- 6. Critical Examination
- 6.1 Potential Decrease in Bond Value
- 6.2 Inflow of Cash at the Parent Company
- 6.3 Insider Information
- 6.4 Allocation Efficiency at the Parent Company
- 7. Practical Example
- 7.1 Company History of Bayer
- 7.2 Reasons for Bayer to separate Lanxess
- 7.3 Reasons for Lanxess to be separated from Bayer
- 7.4 Spin-off Details
- 7.5 Current Situation of Bayer and Lanxess
- 7.5.1. Current Situation of Bayer
- 7.5.2. Current Situation of Lanxess
- 7.6 Market Reaction
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This case study investigates the phenomenon of spin-offs in international management, focusing on the potential to increase value for both the parent company and the newly formed spin-off entity. The study examines the process of spin-off, including its definition, reasons for its implementation, and prerequisites for successful execution. It further explores the implications of spin-offs on capital markets, organizational structure, and shareholder value.
- Defining and classifying different forms of relocation, particularly focusing on spin-offs.
- Analyzing the motivations behind spin-offs from various perspectives, including those of the parent company, the spin-off entity, investors, and regulatory bodies.
- Exploring the prerequisites and potential value enhancement associated with spin-offs, examining theories such as the Principal-Agent Theory and Transaction-Cost Theory.
- Evaluating the potential risks and challenges associated with spin-offs, such as potential decrease in bond value and insider information concerns.
- Illustrating the spin-off process through a real-world example, using the case of Bayer and Lanxess, examining the reasons for separation and the market reaction.
Zusammenfassung der Kapitel (Chapter Summaries)
- Chapter 1: Introduction: This chapter sets the stage for the case study by introducing the phenomenon of spin-offs, discussing their relevance in the context of company restructuring and evolving market paradigms. It highlights the importance of spin-offs as a strategy for increasing shareholder value and provides examples of notable spin-offs in Western Europe.
- Chapter 2: Definition of Spin-off: Chapter 2 provides a comprehensive definition of spin-offs within the framework of German corporate law (UmwG). It differentiates spin-offs from other forms of relocation, such as split-ups and outsourcing, and further clarifies the scope of the term "spin-off" for the purpose of this study.
- Chapter 3: Reasons for Spin-offs: This chapter delves into the motivations for implementing spin-offs, analyzing them from the perspectives of the parent company, the spin-off entity, investors, and regulatory bodies. It explores how spin-offs can address various strategic objectives, including increasing efficiency, focusing on core competencies, and enhancing market competitiveness.
- Chapter 4: Prerequisites for a Spin-off: Chapter 4 outlines the key structural, operational, and legal prerequisites for successfully executing a spin-off. It emphasizes the importance of shareholder consent, effective communication strategies, and ensuring a smooth capital market transaction.
- Chapter 5: Increasing Value by Spin-offs: This chapter examines the potential for spin-offs to increase value for both the parent company and the spin-off entity. It analyzes different theoretical frameworks, including Capital Market Improvements, and improvements in Organization.
- Chapter 6: Critical Examination: Chapter 6 delves into potential risks and challenges associated with spin-offs. It explores concerns such as potential decrease in bond value, issues related to insider information, and potential allocation inefficiencies at the parent company.
- Chapter 7: Practical Example: This chapter provides a detailed case study of the spin-off of Lanxess from Bayer, highlighting the reasons for the separation, the details of the spin-off process, and the current situation of both companies. It further analyzes the market reaction to the spin-off.
Schlüsselwörter (Keywords)
This case study focuses on the key concepts of spin-offs, shareholder value, corporate restructuring, market paradigms, capital markets, organizational structure, and value enhancement. It delves into theoretical frameworks such as the Principal-Agent Theory, Transaction-Cost Theory, and Property Rights Theory, and explores the practical implications of spin-offs through a real-world example.
- Citation du texte
- Stefan Vollmer (Auteur), Simone Muschelknautz (Auteur), Carsten Schröder (Auteur), 2006, Case Study International Management 2006 "Spin-Off", Munich, GRIN Verlag, https://www.grin.com/document/66746
