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When a company acquires another and sells it in parts expecting that the funds generated
would match the costs of acquisition, it is known as asset stripping.

The process of buying an undervalued company with the intent to sell off its assets for a
profit. The individual assets of the company, such as its equipment and property, may be
more valuable than the company as whole due to such factors as poor management or poor
economic conditions.

 

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For example, imagine that a company has three distinct businesses: trucking, golf clubs and
clothing. If the value of the company is currently $100 million but another company believes
that it can sell each of its three businesses to other companies for $50 million each, an asset
stripping opportunity exists. The purchasing company will then purchase the three-business
company for $100 million and sell each company off, potentially making $50 million.

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The company that makes a hostile takeover is known as the Black Knight.

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This is a process of buying shares of the target company with the expectation that the market
prices may fall till the acquisition is completed.

When a firm or investor buys a substantial number of shares in a company first thing in the
morning when the stock markets open. Because the bidding company builds a substantial
stake in its target at the prevailing stock market price, the takeover costs are likely to be
significantly lower than they would be had the acquiring company first made a formal
takeover bid.

 

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Like the dawn raid in war, the corporate dawn raid is done early in the morning, so by the
time the target realizes it's being attacked, it's too late - the investor has already scooped up
some controlling interest. However, only a minority interest in a firm's shares can be bought
this way. So, after a successful dawn raid, the raiding firm is likely to make a takeover bid to
acquire the rest of the target company.

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ºuring the process of corporate restructuring, a part of the company may break up and set up
as a new company and this is known as demerger.

The creation of an independent company through the sale or distribution of new shares of an
existing business/division of a parent company. A spinoff is a type of divestiture.
 


Businesses wishing to 'streamline' their operations often sell less productive, or unrelated
subsidiary businesses as spinoffs. The spun-off companies are expected to be worth more as
independent entities than as parts of a larger business.

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This is a case of selling a small portion of the company as an Initial Public Offering

1. Sometimes known as a partial spinoff, a carve out occurs when a parent company sells a
minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering.

2. Where an established brick-and-mortar company hooks up with venture investors and a

new management team to launch an Internet spinoff.

 

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In most cases the parent company will spinoff the remaining interests to existing shareholders
at a later date when the stock price is much higher.

Also known as a "carveout" or an "equity carve out."

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A type of corporate reorganization whereby the stock of a subsidiary is exchanged for
shares in a parent company.

 


This is a somewhat rare situation. For example, Viacom announced a split off of its interest in
Blockbuster in 2004 whereby Viacom offered its shareholders stock in Blockbuster in
exchange for an appropriate amount of Viacom stock.

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A corporate action in which a single company splits into two or more separately run
companies. Shares of the original company are exchanged for shares in the new
companies, with the exact distribution of shares depending on each situation. This is
an effective way to break up a company into several independent companies. After a
split-up, the original company ceases to exist.

 


A company can split up for many reasons, but it typically happens for strategic reasons or
because the government mandates it. Some companies have a broad range of business lines,
often completely unrelated. This can make it difficult for a single management team to
maximize the profitability of each line. It can be much more beneficial to shareholders to split
up the company into several independent companies, so that each line can be managed
individually to maximize profits. The government can also force the splitting up of a
company, usually due to concerns over monopolistic practices. In this situation, it is
mandatory that each segment of a company that is split up be completely independent from
the others, effectively ending the monopoly.
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?reenmail is a situation where the target company purchases back its own shares from the
bidding company at a higher price.

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A grey knight is a company that takes over another company and its intentions are not clear.

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Hostile bids occur when acquisitions take place without the consent of the directors of the
target company. This confrontation on the part of the directors of the target company may be
short lived and the hostile takeover may end up being friendly. Most American and British
companies like the phenomenon of hostile takeovers while there is some more which do not
like such unfriendly takeovers.

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Macaroni ºefence is a strategy that is taken up to prevent any hostile takeovers. The issue of
bonds that can be redeemed at a higher price if the company is taken over does this.

 
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An approach taken by a company that does not want to be taken over. The company issues a
large number of bonds with the condition they must be redeemed at a high price if the
company is taken over.

 

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Why is it called Macaroni ºefense? Because if a company is in danger, the redemption price
of the bonds expands like Macaroni in a pot!

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When a company is purchased and the investors bring in their managers to control the
company, it is known as management buyout.

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In a management buy-out, the managers of a company purchase it with support from venture
capitalists

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This is a strategy that is taken by the target company to make itself less appealing for a
hostile takeover. The bondholders are given the right to redeem their bonds at a premium
should a takeover occur.
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