This Case is aboutÂ FINANCIAL MANAGEMENT, REORGANIZATION
PUBLICATION DATE: June 25, 2014 PRODUCT #: W14241-HCB-ENG
In the month of January 2001, the chief executive officer of Canadian Pacific Limited (CPL) was anticipating the future of his firm.CPL was one of the earliest conglomerates in Canada with businesses in natural resources, transportation, railways and resorts. Its stock market capitalization of CDN$13.5 billion demonstrated a conglomerate discount, approximately at 12 to 35 per cent of the value.
Optimize shareholder value and as a way to remove this conglomerate discount, the CEO considered the advantages and disadvantages of spinoffs or asset divestitures. Would it make sense to keep a few of the associated company together to maintain synergies and to sustain economies of scale and range? What will be the tax consequences of every choice?
There have been numerous legal and operational consequences to take into account. Understanding he needed to make a choice immediately, the CEO looked for the alternative that will unlock the most worth for the stockholders of CPL.