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Reversing Corporate Diversification and the Use of the Proceeds from Asset Sales: The Case of Thorn EMI

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  • Kevin MJ Kaiser
  • Aris Stouraitis

Abstract

The restructuring of Thorn EMI transformed a diversified conglomerate trading at a diversification discount into a focused music company, while creating considerable value for shareholders. At the peak of its diversification, the conglomerate lacked sufficient funds for investment in its flagship music division. During its restructuring, this lack was remedied by raising cash through asset sales and reinvesting the proceeds in the company’s core music activities. The Thorn EMI case contradicts the idea that managers destroy shareholder value when they reinvest the proceeds from asset sales for expansion through acquisitions.

Suggested Citation

  • Kevin MJ Kaiser & Aris Stouraitis, 2001. "Reversing Corporate Diversification and the Use of the Proceeds from Asset Sales: The Case of Thorn EMI," Financial Management, Financial Management Association, vol. 30(4), Winter.
    • Handle: RePEc:fma:fmanag:kaiser01
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    Cited by:

    1. Angélica María Sánchez-Riofrío & Luis Ángel Guerras-Martín & Francisco Javier Forcadell, 2015. "Business portfolio restructuring: a comprehensive bibliometric review," Scientometrics, Springer;Akadémiai Kiadó, vol. 102(3), pages 1921-1950, March.
    2. Marinelli, Federico, 2008. "Persistence of outstanding performance and shareholder value among diversified firms: The impact of past performance, efficient internal capital market, and relatedness of business segments," IESE Research Papers D/758, IESE Business School.
    3. Ingolf Dittmann & Ernst Maug & Christoph Schneider, 2008. "How Preussag Became TUI: A Clinical Study of Institutional Blockholders and Restructuring in Europe," Financial Management, Financial Management Association International, vol. 37(3), pages 571-598, September.
    4. N.N. Natocheeva & V.B. Frolova & T.V. Belyanchikova, 2018. "Model of Assessing the Impact of Factors on Cash Flow Multiplicators," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 338-347.
    5. V. Frolova B. & T. Khan F. & В. Фролова Б. & Т. Хань Ф., 2018. "Драйверы стоимости продуктовых розничных компаний на развитых и развивающихся рынках // Cost Drivers for Food Retailers in Developed and Emerging Markets," Экономика. Налоги. Право // Economics, taxes & law, ФГОБУ "Финансовый университет при Правительстве Российской Федерации" // Financial University under The Government of Russian Federation, vol. 11(6), pages 100-111.
    6. Humphery-Jenner, Mark & Powell, Ronan & Zhang, Emma Jincheng, 2019. "Practice makes progress: Evidence from divestitures," Journal of Banking & Finance, Elsevier, vol. 105(C), pages 1-19.
    7. Jory, Surendranath R. & Ngo, Thanh N., 2012. "The effect of foreign segment location on the geographical diversification discount," Global Finance Journal, Elsevier, vol. 23(2), pages 108-124.

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