As a company grows and expands (whether by acquisition or organically), it can encounter issues which may prompt a divestiture. For example, a once high-performing business unit declines or becomes stagnant and drags down the performance of the overall company, or business units within the company create negative synergies, such as where a major customer of one business unit is a major competitor of other business units, or a company undergoes a major change in its business strategy. In each instance, a potential solution is to sell one or more impacted businesses in order to unlock value from the sale of the businesses and/or realign the company in connection with a strategic shift.
Guest Author: Ruth Knox, Managing Associate, Linklaters LLP
Given the pace of change in the automotive industry and related technologies, combined with increasing regulatory scrutiny, what risks and challenges can the global automotive industry expect to deal with in 2018 and beyond across Europe, China, and the United States?
On April 10, 2018, Foley & Lardner and Linklaters LLP, a global law firm based in the U.K., held a roundtable on the “Future of the Automotive Sector in Europe, China and the United States.” Major points addressed at the roundtable are summarized below.
All good things must come to an end. So it is in life, and so it is in business. Eventually all business relationships, including manufacturing relationships, will come to an end. Some relationships end with nary more than a whimper, as both parties are content to move on and deploy their resources elsewhere. More often, the end of a business relationship is an acrimonious affair in which one (or both parties) feels it has been wronged or treated unfairly.
On March 23rd, automotive companies that rely on imported steel and aluminum were confronted with new special tariffs of 25 percent on all imports of steel and tariffs of ten percent on all imports of aluminum, with temporary exclusions for Argentina, Australia, Brazil, Canada, Mexico, the member countries of the European Union, and South Korea. Even automotive companies that solely or largely source from domestic steel companies have discovered that steel prices were sharply rising to reflect the new curbs on imports.
The Tax Cuts and Jobs Act of 2017 contains some of the most significant changes in tax laws in more than a generation. While the full implications of the Tax Act are still coming into focus, the magnitude of these changes should cause us to reevaluate past decisions in light of changed circumstances. Current tax and market trends suggest that corporations that have in the past decided against divesting of assets or business lines should reevaluate such decisions, and may cause corporations to take a fresh look at new acquisition activity as well. Three factors stand out that justify reevaluation in light of the Tax Act.