Asset stripping

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Asset stripping refers to selling off a company's assets to improve returns for equity investors, often a financial investor, a "corporate raider", who takes over another company and then auctions off the acquired company's assets.^[1] The term is generally used in a pejorative sense as such activity is not considered helpful to the company.

The proceeds of the sale of assets may be used to lower the company's net debt. Alternatively, they may be used to pay a dividend to equityholders, leaving the company with lower net worth – i.e. the same level of debt but fewer assets (and weaker earnings) to support that debt. With a lower level of assets, some argue that the business is rendered less financially stable or viable. For example, the sale-and-leaseback of a building would lead to an increased rental bill for the company.

Asset stripping is a highly controversial topic within the financial world. The benefits of asset stripping generally go to the corporate raiders, who can slash the debts they may have whilst improving their net worth.^[2] However, since asset stripping often results in thousands of employees losing their jobs without much consideration of the consequences to the affected community, the concept can be unpopular in the public sphere. One particular example of where asset stripping cost a significant number of workers their jobs was in the Fontainebleau Las Vegas LLC case.^[3] After the takeover, 433 people lost their jobs when assets were sold off and the company was stripped.

Asset stripping has been considered to be a problem in economies such the United Kingdom,^[4] and the United States, which have highly financialized economies. In these situations, finance capital focusses on shareholder returns, sometimes at the expense of the viability of bought out companies.