Although divestments have traditionally been viewed as a side aspect of M&A, this trend has changed as divesting more proactively to fund growth has increased. As existing research is primarily from North America and other parts of Europe, Norwegian divestments constitute a limited research field. This led to an inquiry into the motives behind divestments and possible evidence of value creation of Norwegian divestments. Two different studies were conducted with the purpose of answering the problem statement’s overall question:
“What are the motives behind a divestiture, and is there empirical evidence of Norwegian divestments creating shareholder value?
Section 2 discussed the key motives behind the decision to divest. Since the assumed underlying objective for a company is to maximize shareholder value, exploiting divestment opportunities with positive NPV can be an intuitive motive. However, this section discovered the existence of multiple other motives, including financial reasons such as divesting to create additional capital or to sell poorly performing business units. Through a more strategic view, splitting up companies can create higher transparency and thereby shareholder value. In fact, firms are motivated to divest in order to
business to a more suitable owner. Finally, as the environment is constantly changing, the need for strategic correction is increasing leading to climate-friendly divestments.
The aim of Section 3 was to examine whether there is empirical evidence that the announcement of Norwegian divestiture creates shareholder value. This was done using an event study to compare the stock returns to the market by calculating the abnormal return on the announcement day. The final results have been presented with the use of different event windows for a given sample and compared with existing research on the field. Based on the results, the event study found evidence of Norwegian divestitures creating shareholder value on the announcement day. In fact, the average abnormal return (AAR) of 2.5% on the announcement day was statistically
significant on a 99.8% confidence level, confirming Hypothesis 1. The sub-sample gave an even higher AAR of 3,6%, confirming Hypothesis 2, which indicates that larger divestments have a greater impact on the vendor’s stock prices compared with the total sample in the first hypothesis.
However, as the time period only covers a historical long bull market, general conclusions regarding whether divestments create shareholder value during economic downturns cannot be drawn from this study.
The final section investigates the decision behind Yara’s ongoing carve-out. Key motives behind this carve-out were found to include greater transparency, a desire to focus on its core-business and the need to prioritize more sustainable production methods. In addition, a carve-out valuation was conducted as of February 14, 2020 using DCF-models. The valuation found evidence that the combined EV of RemainCo and NewCo yields an 8,5% higher value than Yara as a consolidated company. As well as supporting the central thesis, this also supports the theory of the
conglomerate discount, indicating that Yara is traded at a discount of 8,5%. In addition, the DCF-model is supplemented with a multiple analysis, confirming that the two companies, according to the value of their peers, deserve a higher value separately than when consolidated.
Furthermore, as the global economy was recently hit by the Covid-19 pandemic, an additional valuation was conducted in the scenario analysis for March 31, 2020 to capture the impact of the virus. Since this analysis provided indications that Yara is being traded at a conglomerate discount of 20,6%, the large discount emphasizes the difficulty of predicting a precise interruption by the pandemic on the market value. This created a further discussion on alternative perspectives in Section 5.2. However, as mentioned in the perspective in Section 5.2, the benefits of
conglomerates spreading the operational risk could be the key factor for financial stability during recessions. This leads to indications that if the studies in this thesis had covered other factors such
as economic downturns or geographical areas, the findings could have yield other, if not opposite, conclusions.
Finally, the problem statement in this thesis is based on an overall hypothesis, originated from existing research, that divestments create shareholder value. Both studies found evidence of value creation from Norwegian divestments, supporting the same logic suggested by the applied
theories. However, it should be mentioned that the case study is based on only one specific company, providing limited basis for scientific generalizations. On the other hand, as the event study additionally evaluates the short-term effect of multiple divestments though statistical tools, the thesis captures the value effect over the short and the long term, providing both a broad and deep understanding of the topic. Hence, combining the two studies provides empirical evidence of divestments creating shareholder value for Norwegian vendor companies, and the main problem statement is therefore considered accepted.
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