KAT Exploration Inc (KATX)

[B402]

Thanks Dag, Good Points made here...

CREATING VALUE FOR SHAREHOLDERS

Companies that elect to restructure usually have one goal in mind: creating value for shareholders. Empirical evidence in the form both of price-to-earnings (P/E) multiples and total return to shareholders (TRS) — the combined capital appreciation and dividend yield of an equity — demonstrates that, on average, each form of restructuring creates value.

Gains in stock prices flow from four changes. First, there is an increase in coverage by analysts. This seems to support investment bankers’ claims that floating equity in business units not previously exposed to the market makes their operating performance more transparent and raises shareholder returns by revealing hidden value. This transparency, however, comes not from a greater quantity of information provided by the company — it can freely provide more information about business units without restructuring ownership — but from an improvement in the quality of analysts’ coverage.

Second, the restructured subsidiaries attract new investors. Indeed, there is little overlap between people who invested in a parent company and those who invest in its subsidiaries after a restructuring. Third, the restructuring of ownership usually improves a subsidiary’s operating performance through such means as new incentives to management. Finally, restructuring can improve corporate governance and increase strategic flexibility.

Our research on large restructurings of ownership shows that the announcement of tracking-stock deals or spin-offs tends to raise the price of the parent company’s stock by 2 to 3 percent. When we analyzed recent announcements of majority-owned equity carve-outs, however, we found that they had no positive effect on the parent company’s stock.