Paypal
Paypal was spun off as a separate entity from eBay in 2015. The sin-off was done in the best interest of the company as well as the interests of the company shareholders. After break up the eBay marketplace business unit remained to be the key driver for eBay. Revenue grew from $7 billion in 2016 to $8.5 billion in 2108 at CAGR of 9.7%. In the same period, the marketing and advertising business a health CAGR 8.1% was seen, revenue grew from $1.9 in 2016 to $2.3 billion in 2018. eBay spun-off 10% of shares to PayPal. The eBay marketplace is expected to grow to $9.2 billion in 2020 as a result of the break-up $9.2 billion in 2020 as a result of the demerger.
General Electric CO. (GE) is the other break-p that has happened in the United States. The breakup (BU) was agreed on in May 2018 where GE was to spin-off was agreed to merge the transport segment with Wabtec Corp.
The breakup decision involved reducing quarterly dividend by 50 percent to $0.12/share. The company also intended to divest some of its business operations and concentrate on more profitable segments. The size of the board of directors (BOD) was reduced from eighteen to twelve members. Further, it involves cost-cutting initiatives. The initiative helped the company to diversify its portfolio and reduce losses for those who bought General Electric. GE sold 1,000 shares at an average process of $58.31. The share price declined $25.0. If the shares were sold at this price it means that the shareholders would lose $32.5 per share. The share price decreased by more than 50%.
In UK Reckitt’s pharmaceutical unit Indivior has been considered as the largest recent break-up. The breakup delivered 35% compared to the FTSE All-Share total return of 7%. The good performance result from the good management of the company. The concentration in one company segment enhances efficiency and hence increases productivity.
Initial public offer (IPO) is the process of selling the stocks of the private company to the public in the form of new issuance. IPO helps the corporation to raise capital from public investors. Today investors are not willing to accept financial excess for unprofitable initial public offers. Today IPO is considered to be mis-practice and hence many investors are advised that it is not always a good practice. The major reasons for IPO mis-practice today include;
The Process is Expensive
The process of going public is time-consuming and expensive. To announce IPO the company must publish its reports on the U.S. Securities and Exchange Commission regulations on its intention for initial public offering (IPO). WeWork will be required to mobilize staff to IPO and also it will be required to a higher professional to take the management through the process, including underwriters, accountants, and attorneys.
Equity Dilution
The WeWork initial public offer was also postponed as a result of reducing the value of shareholders’ stock value. Going public will involve the selling portion of the company to other investors. Investors, therefore, prefer to source capital from other sources and maintain their current ownership in the company.
Loss of Management Control
Going to the initial public offering the management would lose control of the corporate affairs. The management of the company will no longer be able to make the decision independently. The minority shareholder will have to be involved in the decision-making process of the company even though WeWork is the majority shareholder. The IPO will reduce the control of the company over the board of director composition since the federal law restricts board composition.
Increased Regulatory Oversight
Initial public offering places the corporation under the supervision of the state regulatory agencies such as the security exchange commission (SEC) that regulate the listed company. The regulatory oversight increase changes the way in which the company is managed. In most cases, this slows the process of decision making.
Increased Liability is Possible
Going for an initial public offering exposes the company to extra liability. Implementation of the Initial public offering rises the debt of the company as well as the company directors. The obligation of the company is also increased as listed companies have the obligation of maximizing the shareholder profits and disclosing of operation information. The company management can be sue for making misrepresentation, self-dealing, and omission information that should be disclosed based on federal securities laws.
Mis-practice that lead to failure of WeWork IPO include;
In its Prospectus, WeWork is seen as a technical company though it trades in real estate business. The motive behind this was to go through a good initial public offering. Many investors show this as fraud or unethical hence making them perceive WeWork is a fraud company.
(b) your own in-depth diagnosis of what you contend is the more important considerations, with articles and similarly used to support & test your own original analyses.
The decision converts a private company in public through an initial public offering (IPO) should not be taken lightly. IPO has both advantages and disadvantages and hence the management should be very careful when making such a decision. Before making the decision to implement IPO the management should ensure that the IPO is feasible and will generate profits for the company. To determine whether IPO is feasible the company should satisfy some criteria.
The first consideration is the size of the market and its growth capability. The bigger the market the more profitable the company will be. The company should, therefore, access who faster the company will grow in the selected security exchange market. If the company has a huge market then there is potential for IPO being successful.
The company should also consider defining the company with long term goals. IPO help in generating money to change the business operation. Financial planning is concerned with defining the goals and values of the company. Working backward will help the company achieve its desired goals. The company should also consider improving its credibility with customers, lenders, and investors as well as better the morale of employees.