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J. S. Bhandari, L. A. Weiss, and B. E. Adler (eds.), Corporate Bankruptcy: Economic and Legal
Perspectives (Cambridge, U.K.: Cambridge University Press, 1996).
A. Bris, I. Welch, and N. Zhu, “The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11
Reorganization,” Journal of Finance 61 (June 2006), pp. 1253–1303.
Here are several good case studies on topics covered in this chapter:
B. Burrough and J. Helyar, Barbarians at the Gate: The Fall of RJR Nabisco (New York: Harper &
Row, 1990).
G. P. Baker, “Beatrice: A Study in the Creation and Destruction of Value,” Journal of Finance 47 (July
1992), pp. 1081–1120.
K. H. Wruck, “Financial Policy as a Catalyst for Organizational Change: Sealed Air’s Leveraged
Special Dividend,” Journal of Applied Corporate Finance 7 (Winter 1995), pp. 20–37.
J. Allen, “Reinventing the Corporation: The Satellite Structure of Thermo Electron,” Journal of
Applied Corporate Finance 11 (Summer 1998), pp. 38–47.
R. Parrino, “Spinoffs and Wealth Transfers: The Marriott Case,” Journal of Financial Economics
43 (February 1997), pp. 241–274.
C. Eckel, D. Eckel, and V. Singal, “Privatization and Efficiency: Industry Effects of the Sale of British
A i r ways,” Journal of Financial Economics 43 (February 1997), pp. 275–298.
L. A. Weiss and K. H. Wruck, “Information Problems, Conflicts of Interest, and Asset Stripping:
Chapter 11’s Failure in the Case of Eastern Airlines,” Journal of Financial Economics 48 (April
1998), pp. 55–97.
W. Megginson and D. Scannapieco, “The Financial and Economic Lessons of Italy’s Privatization
P rog ra m,” Journal of Applied Corporate Finance 18 (Summer 2006), pp. 56–65.
Select problems are available in McGraw-Hill’s Connect.
Please see the preface for more information.BASIC
- Vo c abu l a r y Define the following terms:
a. LBO
b. MBO
c. Spin-off
d. Carve-out
e. Asset sale
f. Privatization
g. Leveraged restructuring
- Restructuring True or false?
a. One of the first tasks of an LBO’s financial manager is to pay down debt.
b. Once an LBO or MBO goes private, it almost always stays private.
c. Targets for LBOs in the 1980s tended to be profitable companies in mature industries.
d. “Carried interest” refers to the deferral of interest payments on LBO debt.
e. By 2008 new LBO and private-equity transactions were extremely rare.
f. The announcement of a spin-off is generally followed by a sharp fall in the stock price.
g. Privatizations are generally followed by massive layoffs.
h. On average, privatization seems to improve efficiency and add value.
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SETS