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DuPont divests Conoco - Case Study Example

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The transaction involving Conoco consisted of a two-stage transaction. First an equity carve out occurred in 1998 for 30% of Conoco shares then in 1999 the other 70% were divested by a “variant of a spin-off” which is an exchange offer where Dupont shareholders choose between keeping their shares or exchanging the stock for parent stock…
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DuPont divests Conoco
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DuPont divests Conoco

Download file to see previous pages... The divestiture should be made from a financial perspective and not arbitrarily in order to create more vaule for the firm by breaking the firm into more pieces. Considerations must be made to analyze what effect a carve-out could have on the company? What effect could a spin-off have on the company? What effect could an asset sale have on the company? All these options must be considered in relation to market, firm return and net return.

The main benefit of divestiture is the production of wealth for the parent company. Historically the divestiture of a company has caused a positive Net Present Value (NPV) based on the size of the company based on “Takeovers, Restructuring and Corporate Governance”. “Alchian and Demsetz (1972) and Jensen and Meckling (1976) suggest one reason why corporate divestitures might create wealth. If the divestitures improve managerial incentives or better enable shareholders to monitor managerial performance, then the separation of a corporation into different pieces can improve the efficiency of operations and thereby increase the combined value of the assets.” ...Download file to see next pagesRead More
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