This thesis has been divided into several sections, all investigating the underlying principles of divesting. The motivations for this investigation originated from the limited research of divestments in the Norwegian market. Since existing research has found evidence of value creation from divestments in other time periods and geographical areas, this thesis tested weather this evidence holds true in another context. To create a broad foundation for answering the problem statement, the investigation was divided into two studies: an event study in Section 3 and a case study in Section 4.
Based on the results found in Section 3, there are reasons to draw valid conclusions that there are positive market reactions to Norwegian divestment announcements, creating value for
shareholders. On the announcement day, both hypotheses are statistically significant on a 99,8%
confidence level, indicating that the results are not just due to chance and can be considered true.
However, this event study is based on multiple considerations and assumptions. In principle, changing these considerations could provide another set of findings. This includes adding or changing the hypotheses, the benchmark index, the model or sample criteria, which might explain the differences when comparing with previous research. In addition, divestment activity is strongly dependent on the prevalent market environment, which can affect the results of an announcement (Erxleben, 2015). This study covers an economically healthy time period with the longest bull market in history, compared with previous studies that covered different financial crises. Hence, the choice of time period could explain the higher CAAR in this study compared with previous
research.
The choice of model is also decisive to the result, which could have been different were another approach taken. Even though the study opted out of the Market Adjusted Model, due to its simplicity, the model has been used for comparison purposes against the Market Model. The two models provided almost identical results for both samples, which ensures the reliability of the data and strengthens the validity of the study. However, although the transactions have been thoroughly evaluated based on several criteria, one should always critically assess the results found. This is important specifically for the sub-sample, as it includes relatively few deals, leading to each outlier having a greater comparative effect.
One of the motives behind restructuring, found in Section 2, was poor performance. This was reflected in the negative CAAR prior to the divestment announcements in the event study, indicating that the observed companies underperformed the market before the divestments were revealed. Yet, there are many related motives behind divestments, and the benefits of divesting do not appear overnight, but rather after a long process. The conclusion drawn from Section 3 is, however, based on a short-term perspective, and the results do not incorporate information after the chosen event window. There are therefore not enough grounds to claim that the initial market reaction of a divestment corresponds to long-term value creation. Consequently, the event study could have included hypotheses investigating the long-term value effect of divestments. This was, however, believed to be less optimal as this study aimed to find a direct link between divestment and its potential value creation. Finding this link was only considered possible by narrowing down the event window, to make sure the reasons for any stock price increase during the
announcements were not affected by external market conditions. In fact, the divestment effects appeared to vanish when looking at the CAAR in the broadest event window in the event study (-30; +30).
Based on Section 4, there are reasons to state that the two separate companies yield a higher value combined than Yara as a consolidated company, reflecting the value creation of conducting a divestment. Although, there are multiple benefits of being a conglomerate, such as the spreading risk among different industries, the 8,5% conglomerate discount found in the case study may reflect the findings of the possible motives behind Yara’s desire to carve-out its industrial nitrogen business. However, as the DCF-model, which is the primary method for valuing these companies, is based on the authors’ subjective assumptions, it might include miscalculations, heightening the importance of scrutinizing the results. In addition, the sensitivity analysis showed that the firm value is vulnerable to small changes in various factors, which might lead to the results from the model deviating from the actual market value. On the other hand, since the EV found in the DCF-model of Yara as a consolidated company is close to Yara’s market value, there are indications
that the author's subjective assumptions are in line with market expectations. The combined EV from the multiple analysis also supports evidence of conglomerate discount. This value is close to the combined EV obtained from the DCF-model, which strengthens confidence in the ability to draw valid conclusions. Moreover, the estimates found in the scenario analysis also gave indication that Yara is traded at a conglomerate discount. While the adjustments discussed in the scenario analysis were considered to be relatively conservative, the combined EV significantly exceeded the market value of 20,6%. This can be explained by the severe impacts of the coronavirus pandemic, emphasizing the difficulties of predicting an outcome.
Individual case studies can be criticized due to their limited basis for scientific generalization, which is rarely based on a single case. Thus, a general conclusion solely based on this case study that divestments create shareholder wealth should be drawn with caution, if at all. Instead, the study provides insights into the motives behind a divestment decision, and how such a decision might provide additional value for the specific company in the longer term (Yin, 2009). The carve-out assumptions made in this study are intended to be as general and valid as possible, in an effort to generalize conclusions that divestments create shareholder value, regardless of which company is being evaluated. This is supported as the assumptions are considered objective, including the benefits of doing a divestment, as well as the drawbacks such as losing synergies and carve-out costs. In addition, the forecasted margins of both companies seem to be realistic, and quite conservative, compared with the historical margins.
Finally, although the two studies include certain limitations, as discussed above, they complement each other and jointly provide stronger analyses creating variations in the overall methodology.
While conclusions have been drawn in the short term from the event study, the case study
analyzed potential value creation from a longer-term perspective. In addition, as the case study is based on only one specific divestment, the thesis included an event study with multiple
transactions providing a wider range of statistical evidence. Conclusively, combining the two studies provides a stronger basis on which to draw a general conclusion that Norwegian
divestments do create shareholder value. However, it is important to emphasize that these studies only cover a period of relatively robust market conditions. Therefore, conclusions based on the studies cannot be drawn as to whether divestments could create shareholder value in the Norwegian market during an economic downturn.