Applied Mergers and Acquisitions. Robert F. Bruner

of a business or its assets. But a special equity claim on the subsidiary business is created, the dividend of which is tied to the net earnings of the subsidiary. This results in monetization of the subsidiary and in greater transparency. Exhibit 6.14 illustrates the tracking stock alternative.

FINANCIAL RECAPITALIZATION This focuses on changes in the firm’s capital structure.⁵ The intent is usually to optimize the mix of debt or equity, or to adjust the equity interests in the business. Regarding the debt/equity mix, firms might undertake a leveraged restructuring in which the firm borrows debt to repurchase shares or pay an extraordinary dividend. Chapters 13, 20, and 34 explore the implications of capital structure altering transactions. Regarding changes in the equity base, firms could contemplate an ESOP restructuring in which the firm purchases its own shares (or issues them from its treasury) for sale to an employee stock ownership plan. Alteration of both the capital mix and equity ownership is seen in reorganization in bankruptcy in which the firm exchanges debt obligations for equity interests to reduce its debt burden under the protection of the court.

Exhibit 6.15 summarizes the activity in divestitures, spin-offs, and carve-outs from 1986 to 2002. The number of divestitures increased dramatically over this period, by almost five times. Also, relative to the total number of M&A transactions, divestitures account for about one-quarter to one-third of the total over time. The number of spin-offs and carve-outs is highly variable over this period and, relative to M&A activity, quite small.

EXHIBIT 6.15 Volume of Divestitures, Spin-offs, and Carve-outs by Year and as a Percentage of Total M&A Activity

	1986	1987	1988	1989	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002
Number of transactions
Divestitures	1,357	1,474	2,103	2,895	3,701	5,128	5,002	5,241	5,414	6,261	6,580	7,063	7,044	7,811	7,735	6,998	6,283
Spin-offs	34	28	38	37	48	31	42	46	39	63	76	76	118	81	102	63	35
Carve-outs	3	5	6	21	40	70	76	167	240	176	142	64	32	32	44	45	20
As a % of M&A deals
Divestitures	35.8%	30.8%	31.8%	31.5%	36.8%	37.2%	37.8%	37.8%	33.2%	31.8%	31.4%	30.9%	28.0%	28.5%	26.3%	31.3%	34.3%
Spin-offs	0.9%	0.6%	0.6%	0.4%	0.5%	0.2%	0.3%	0.3%	0.2%	0.3%	0.4%	0.3%	0.5%	0.3%	0.3%	0.3%	0.2%
Carve-outs	0.1%	0.1%	0.1%	0.2%