Capital markets and corporate structure: the equity carve-outs of Thermo Electron

This paper examines the innovative corporate structure of Thermo Electron Corporation which holds controlling interests in 11 units taken public in equity carve-outs. Carve-outs subject units of the company to the scrutiny of the capital markets, allow the compensation contracts of unit managers to be based on market performance, and shift capital acquisition and investment decisions from centralized control to unit managers. Thermo carve-outs substantially increase capital and R&D expenditures following carve-outs and generate significant value from their capital investments. Since the first carve-out in 1983, gains to shareholders have been substantially greater than industry and market benchmarks. (C) 1998 Elsevier Science S.A. All rights reserved.