Corporate Restructuring WS 2020/21, Christoph Schneider

The topic of this course is the restructuring of corporations through a number of different transactions, most prominently, mergers, acquisitions, and divestitures. Corporations frequently change their economic focus and their organizational structure, and it seems the pace of restructuring of many companies has accelerated. These decisions are costly and often motivated by increases shareholder value, although in many cases other interests seem to be more dominant. The purpose of the lecture is to provide an understanding of these processes, provide an analytic framework to analyze the motivation of these activities and their individual merits. Students will acquire skills in several areas that are related to the four guiding themes of this lecture:

• Concepts to analyze contractual structures. We will discuss different institutional and legal environments and alternative ways to organize economic activities. Building on the theory of the firm, especially the theory of internal capital markets, we discuss agency problems and understand contractual structures as ways to minimize transaction costs. With this in mind, we analyze mergers, standard financial contracts like debt, non-standard contracts like targeted stock, and alternative forms of divestitures like spin-offs, sell-offs, and carve-outs. Ultimately, students should learn to analyze the costs and benefits of different methods to restructure companies and the trade-offs involved in choosing a particular structure to organize economic activities in firms.
• Corporate Strategy. We start off with a simple model of industrial competition and briefly review different paradigms and their implications for building large corporations. We discuss a simple framework to organize our thoughts about strategic planning. Throughout the course, we will analyze strategic interactions between the various players involved in restructuring decisions, typically by working through simple game-theoretic models. Here, students should acquire the ability to see through arguments of managers and regulators alike and evaluate to what extend assessments of corporate transactions are built on sound economic analysis.
• Valuation. Valuing companies was the main theme of Advanced Corporate Finance in the last semester, and we fill some gaps here that were left open at the time. We apply the APV-approach to decisions about optimal capital structure and to the valuation of synergies. The ability to value companies is an important skill, and this course should round off the discussion.
• Empirical studies. We will study several empirical studies about mergers, acquisitions, and divestitures. These studies reveal important insights about merger strategies, the plausibility of the shareholder value-argument to motivate these transactions, and the likely sources of value creation. We use the paradigm of efficient capital markets to establish a link between empirical analysis and company valuation.

These four themes are not topics of individual lectures or segments of the course. Rather, they are threads running through the whole course, which proceeds by working through different types of transactions and picking up these threads as they become relevant for each topic.