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Value creation through corporate restructuring : a case study of the spin-off of REC Solar ASA

Krogdahl, Torjus; Nicolaisen, Ulrikke
Master thesis
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URI
http://hdl.handle.net/11250/223273
Date
2014
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  • Master Thesis [3258]
Abstract
This thesis presents a detailed analysis of the spin-off in REC ASA to show how corporate

reorganization can enhance the value of a firm operating in a challenging industry. The goal of

the study was to determine whether the separation of REC ASA’s module and polysilicon units

generated value and, if it did, what the sources were. The research followed a funneling approach,

where the initial research fathomed broadly before singling out the most important aspects of the

transaction. This included an analysis of empirically proven value drivers, industry and firm

specific factors, before ending with a thorough analysis of the key characteristics of the

transaction.

The study finds that the spin-off generated an abnormal return of 19.53 percent immediately

following the announcement, while the longer event windows were affected by conflicting

announcements making the abnormal return output unreliable. The announcement was also

associated with a positive reaction in bond prices, establishing that the separation was value

enhancing also for the debt holders. The analysis of value drivers shows that the company was

trading at a relative discount prior to the spin-off and that the discount was eliminated following

the announcement. The key value driver in the transaction was that it solved the firm’s cash

shortage problem by bringing its cash balance in excess of its short debt maturities. In addition, it

improved the strategic position of both parent and subsidiary by eliminating the silicon unit’s

exposure to the underperforming solar unit and positioning the solar unit for the expected

challenges of the module industry.

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