Breaking up company and selling the parts create value

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A multi-product company's breakup value equals the cash one could realize by splitting the company into two or more independent firms and disposing of each separately. A company becomes a candidate for a takeover when its market value falls below its breakup value.

a. How might breaking up a company and selling the parts create value?

b. If the sum of the free cash flows of the enterprises created by breakup equals the cash flow of the company prior to breakup, might breakup still create value? If so, how?

Reference no: EM13834990

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