Unbundling of listed companies : does it unlock shareholder value and improve performance? : a case for Zimbabwe.
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The problem addressed in this study is the lack of information relating to the viability of unbundling as a strategy for companies listed on the Zimbabwe Stock Exchange (ZSE). The study sought to determine whether the unbundling of listed companies on the ZSE has resulted in the maximisation of shareholder wealth and an improvement in the performance of the unbundled entities. The sample consists of spin-offs undertaken by listed companies between January 2000 and December 2005. The starting and ending points for the sample period were dictated by data availability. No spin-offs were identified prior to January 2000. The sample frame is composed of seven listed companies that have unbundled and whose unbundled entities were subsequently listed on the Zimbabwe Stock Exchange. In total sixteen companies emerged from the seven companies that unbundled and all sixteen companies were studied. Returns of parent and spun-off companies were computed to determine if unbundling resulted in cumulative abnormal returns. The value uplift of resultant firms was compared with the industrial index to determine if unbundling resulted in overall value uplift in the companies that unbundled. Questionnaires were also administered on financial executives of the parent and spun-off companies as well as stockbrokers to establish their views on the outcome of unbundling. The study finds that positive cumulative abnormal returns accrued as a result of unbundling and that value uplift in the resultant companies after unbundling is greater than the value uplift in the industrial index. The study also finds that significant drivers behind the decision to unbundle include the need to unlock shareholder value, focus on core competences and facilitation of future growth. Conclusions drawn from the study are that unbundling unlocks shareholder value, leads to performance improvement, results in value uplift of the unbundled entities and that it results in the elimination of information asymmetry. The study recommends that investors should position themselves in companies that have plans to unbundle as they tend to benefit significantly. It also concludes that unbundling is a viable strategy and consequently conglomerates that have experienced declines in performance as a result of diversification should unbundle.