Let's say a company has 0 net debt and a $1bn market cap. Its EV is $1bn. It divests half of its business and receives $0.5bn in cash for it. Assuming that was the fair price for it and its market cap thus stays at $1bn, does its enterprise value get halved to $0.5bn due to the influx of new cash?
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Yes, which makes sense because EV is the value of ‘operating’ assets of a business. Cash is not on operating asset. So divesting a business unit is switching out operating assets for non-operating assets.
Got it. Thanks!
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