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Set out the kinds of corporate restructuring and why issuers undertake them

CFA® Level II · Corporate Finance · Corporate Restructuring · L2.CI.4.a

The idea

Restructurings fall into three groups. Investment actions add to the company: minority equity investments, joint ventures and acquisitions. Divestment actions shrink it: sales of businesses for cash, and spin-offs, in which a unit's shares go to existing shareholders. Restructuring actions reshape it without changing its scope much: cost programmes, balance sheet changes such as leveraged recapitalisations or sale-leasebacks, and reorganisation under creditor protection. Common motives include pursuing growth or synergies, gaining capabilities or scale, correcting perceived undervaluation such as a conglomerate discount, responding to activist pressure, sharpening strategic focus and improving returns or cutting costs. The trap is labelling a spin-off a sale, which it is not, since no cash comes in.

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