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Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are making a transition to the market. In these situations, managers of a state-owned company have been known to sell the assets which they control, leaving behind nothing but debts to the state.
A fictional example of asset stripping can be found in the 1987 film Wall Street. In this film, the ruthless investor Gordon Gekko, played by Michael Douglas, purchases the failing airline Blue Star, under the pretense that he will restructure the company and return it to profitability. However, we later learn that he intends to liquidate all of the company's assets. This example has eerie echoes of the real case of airline TWA, which was subject to a takeover by Icahn Enterprises, led by activist investor Carl Icahn, in 1985. The result of the TWA takeover was Icahn systematically selling TWA's assets to repay the debt he used to purchase the company, leaving him a personal profit of $469 million, while TWA was left with a debt of $540 million.
Asset stripping by private equity firms in Europe is now regulated pursuant to the Alternative Investment Fund Managers Directive.
- 10 Questions for Carl Icahn by Barbara Kiviat, TIME magazine, Feb. 15, 2007
- See Private equity deal making post-AIFMD: asset stripping rules by Giuseppe Giusti http://www.dirittobancario.it/approfondimenti/private-equity-e-venture-capital/private-equity-deal-making-post-aifmd-asset-stripping-rules
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