Areas of Opportunity for Value Investors: Investing in Corporate Liquidations

Some troubled companies, lacking viable alternatives, voluntarily liquidate in order to preempt a total wipeout of shareholders' investments. 

Other, more interesting corporate liquidations are motivated by

• tax considerations, 
• persistent stock market undervaluation, or 
• the desire to escape the grasp of a corporate raider. 

A company involved in only one profitable line of business would typically prefer selling out to liquidating because possible double taxation (taxes both at the corporate and shareholder level) would be avoided.

A company operating in diverse business lines, however, might find a liquidation or breakup to be the value-maximizing alternative, particularly if the liquidation process triggers a loss that results in a tax refund. 

Some of the most attractive corporate liquidations in the past decade have involved the breakup of conglomerates and investment companies. 


Most equity investors prefer (or are effectively required) to hold shares in ongoing businesses. Companies in liquidation are the antithesis of the type of investment they want to make.

• Even some risk arbitrageurs (who have been known to buy just about anything) avoid investing in liquidations, believing the process to be too uncertain or protracted. 
• Indeed, investing in liquidations is sometimes disparagingly referred to as cigarbutt investing, whereby an investor picks up someone else's discard with a few puffs left on it and smokes it. 

Needless to say, because other investors disparage and avoid them, corporate liquidations may be particularly attractive opportunities for value investors.