Breakup value

Breakup value is the market value of a business if its business units were to be sold off and operated independently. If the breakup value of a firm is greater than its current market value as a single entity, it can make sense to sell off pieces of the firm in order to increase the realized value for shareholders. In these situations, the money gained from an asset sale is given to shareholders as a special dividend. Another option is to spin off an operating division and distribute shares in the new business to existing shareholders. An acquirer can run the same calculation to see if it is worthwhile to buy a target company and then break it up.

An investor can calculate the breakup value for a public company to see if its shares are trading below the breakup value. If so, the stock may be undervalued and could appreciate over the long term.

Related Courses

Business Valuation 
Mergers and Acquisitions