Valuation: Measuring and Managing the Value of Companies, Fifth Edition
Chapter 22 Solutions
Creating Value through Divestitures
1. The main issue with respect to the dilution or accretion question is whether the return
earned on the divested unit was greater than or less than that earned on the use of the
funds received for the divested unit. If the company uses the proceeds to pay off debt and
2. If the unit considered for divesture is worth more to the acquirer than to the seller, then it
can command a premium from the seller’s viewpoint and should be sold. A division in its
3. Four complicating factors are (1) the possible effects on the synergies and services of the
remaining businesses; (2) changes in the capital structure and fiscal implications such as
4. The buyer should not be influenced by the potential detriments to the seller from
5. There can be many other considerations. One factor may be the way the divesture affects
6. There are two private transaction approaches: (1) a trade sale to a strategic or a financial
investor, and (2) a joint venture to other industry players or related firms. Public
22
7. If there is not a trade-sale buyer willing to pay a sufficient premium, then the parent
company should consider a spin-off in this case. This decision assumes the chemicals
23