The Analysis On The Motivation And Performance Of Baosteel's Asset Divestitures

Asset divestitures refers to one of the business activities in which an enterprise sells part of its assets,production lines,business units,branches or subsidiaries to others to obtain cash or stock or other remuneration.Asset divestitures as a financial strategy implemented by an enterprise have a major impact on the company's operating conditions and company value.This article takes the divestitures strategy of the special steel and stainless steel business division implemented by Baosteel in 2012 as a case study the causes of the company's asset divestitures and its short-term and long-term effects.Based on the motivation of the Baosteel's assets divestitures,the study found that the situation of the steel industry has continuing downturn since 2008,and Baosteel's operating and financial conditions are gradually facing difficulties.The core competitiveness of Baosteel is the production of carbon steel.The long-term loss of its special steel and stainless steel business not only hampers the company's financial performance,but also does not contribute to the company's competitive advantage.In 2011,the company formulated the development strategy of "cost leadership and differentiation".This asset divestitures is a financial strategy that is suitable for the adjustment of the company's development strategy to achieve cost reduction and focus on the carbon steel business with differentiated advantages.For the type of divestiture,the current divestiture is a year-end divestiture,horizontal divestiture,and sale of assets.The transferee is the parent company of the affiliate,which is also in line with Baosteel's operating conditions.This article adopts the event study methods to study the market reaction of the asset divestitures.The results show that the cumulative abnormal return(CAR)on the 10 trading days before and after the asset divestitures announcement is 10.31%,which indicates that the asset divestitures has improved the company's stock price.According to the analysis of the company's financial statements,the profitability of the company has been significantly improved in the year of asset divestitures,and the ability to repay debt and liquidity have also been improved.In the long term,asset divestitures enables the company to focus on its core business,effectively implement cost leadership and differentiation strategies,and its financial performance continues to outperform peer companies.At the same time,the cash flow from asset divestitures has greatly supported the construction of the company's Zhanjiang base and contributed to the long-term profitability and competitiveness of the company.The conclusion of this paper is that Baosteel's assets divestitures is not the tactical assets divestitures to decorate financial statements,but rather to the strategic asset divestitures to suitable for company's long-term development and to play a positive and effective role in achieving the company's development strategy.Based on this proposal,companies should formulate their financial strategies to achieve the company's long-term strategic goals,rather than focusing solely on the improvement of short-term financial statement performance;in addition,after the implementation of asset stipping,companies should also rationally use the cash flow from asset divestitures to continue to improve the profitability of the remaining assets to enhance the core competitiveness,and ultimately achieve the company's long-term strategic goals,improve the long-term business operations.