10.4 Mergers and Divisions 379A division is often connected to internal structural change in which a subsidiary
is split into two or more companies still owned by the parent. The motive may be
to make individual businesses within the group more transparent or to sell one of
the new companies.^238
In recent years, divisions have also been applied as a means to increase share
price. If conglomerate companies are not in fashion, conglomerate discount can be
reduced and the valuation of shares increased by focusing on core business areas.
This can be achieved through the sale of businesses or through a division.^239
Some transactions resemble divisions of companies in the economic sense
without being divisions in the legal sense. (a) For example, a company can dis-
tribute shares in a subsidiary to its own shareholders as a dividend. In 2008, Mo-
torola announced that it would split into two independent companies in 2009. One
business would concentrate on making mobile phones, while the second would
make television set-top boxes and other communications equipment. The split
took the form of a tax-free distribution to Motorola’s shareholders, resulting in
shareholders holding shares of two independent and publicly-traded companies.
(b) In addition, a joint-venture project can be terminated in many ways without the
project company being wound-up or divided.
In EU tax law, the Directive 90/434/EEC on the taxation of mergers was modi-
fied by Directive 2005/19/EC in order to enable tax neutral divisions.^240
Divisions and ownership structure. One of the possible reasons to use divisions
is the need to change the share ownership structure of the company. This can be il-
lustrated by the following three Finnish divisions.
- Unchanged share ownership structure. Antti Ahlström Osakeyhtiö was an old
family-owned Finnish conglomerate. The origins of the business of Ahlström
dated to 1851. The company eventually ended up owning a wide range of as-
sets. In 2001, the company was split into three newly-formed companies.^241
Family shareholders kept their holdings in all three companies: Ahlstrom Cor-
poration (an industrial company that later became listed after an IPO); Ahl-
ström Capital Oy (a privately-owned investment company); and A. Ahlström
Osakeyhtiö (a privately-owned company with long-term forestry and real estate
assets). - Separation of shareholder blocks. Kone Corporation was a listed company
controlled by a family that had been divided into two shareholder blocks. The
shareholder blocks decided to part their ways. In 2005, Kone Corporation was
divided into two listed companies. One shareholder block ended up with
control of (new) Kone, and the other with control of Cargotec. - Takeover or reverse takeover. Founded in 1886, John Nurminen Oy was a large
privately-owned company. In 2007, John Nurminen Oy was divided. In a rever-
(^238) Werlauff E, EU Company Law. Second Edition. DJØF Publishing, Copenhagen (2003)
pp 586–587.
(^239) Ibid.
(^240) See Article 2(b)(a) of Directive 2005/19/EC.
(^241) See Article 21 of Directive 82/891/EEC (Sixth Company Law Directive).