Corporate

Restructuring
 CORPORATE RESTRUCTURING

• The Corporate Restructuring is the process of making

changes in the composition of a firm’s one or more
business portfolios in order to have a more profitable
enterprise. Simply, reorganizing the structure of the
organization to fetch more profits from its operations
or is best suited to the present situation.

• Financial restructuring
• due to a drastic fall in the
sales because of the
adverse economic
conditions.
• firm may change the
equity pattern, cross-
holding pattern, debt-
servicing schedule and the
equity holdings
• Organisational restructuring
• done to cut the cost and pay off
the outstanding debt to continue
with the business operations in
some manner.
• arises because of the change in
company’s ownership structure
due to a merger or takeover,
adverse economic conditions,
adverse changes in business such
as bankruptcy or buyouts, over
employed personnel, lack of
integration between the divisions
• reducing the hierarchical levels,
downsizing the employees,
redesigning the job positions and
changing the reporting
relationships
FORMS OF RESTRUCTURING

1) Merger or Amalgamation
Merger or amalgamation may take two forms:
• Absorption • Consolidation
• In merger, there is complete amalgamation of the
assets and liabilities as well as shareholders’ interests
and businesses of the merging companies.
• There is yet another mode of merger. Here one
company may purchase another company without
giving proportionate ownership to the shareholders’
of the acquired company or without continuing the
business of the acquired company.
(1) Horizontal Merger/ Acquisition of a company in
the same industry in which the acquiring firm
competes increases a firm’s market power by
exploiting (TATA CHEMICALS EUROPE & BRITISH
SALT LTD)
(2) Vertical Merger /Acquisition of a supplier or
distributor of one or more of the firm’s goods or
services (RPL & RIL)(pixar and disney)
(3) Conglomerate Merger /Acquisition by any
company of unrelated industry( walt disney &
abc)
2)Acquisition may be defined as an act of acquiring effective
control over assets or management of a company by
another company without any combination of businesses or
companies.
• A substantial acquisition occurs when an acquiring firm
acquires substantial quantity of shares or voting rights of
the target company.
• 1. Flipkart- Myntra
• The huge and most talked about takeover or acquisition of
the year. The seven year old Bangalore based domestic e-
retailer acquired the online fashion portal for an
undisclosed amount in May 2014. Industry analysts and
insiders believe it was a $300 million or Rs 2,000 crore
deal.
• Microsoft and skype
3)Takeover – The term takeover is understood to connote
hostility. When an acquisition is a ‘forced’ or ‘unwilling’
acquisition, it is called a takeover.
• A holding company is a company that holds more than half of
the nominal value of the equity capital of another company,
called a subsidiary company, or controls the composition of its
Board of Directors. Both holding and subsidiary companies
retain their separate legal entities and maintain their
separate books of accounts.
• AOL and Time Warner, $164bn, 2000
• When AOL announced it was taking over the much larger and
successful Time Warner, it was hailed the deal of the
millennium. But the dotcom boom meant the new AOL Time
Warner lost over $200bn in value in less than two years.
 Motives of restructuring
• Limit competition.
• Utilise under-utilised market power.
• Overcome the problem of slow growth and profitability in one’s own
industry.
• Achieve diversification.
• Gain economies of scale and increase income with proportionately less
investment.
• Establish a transnational bridgehead without excessive start-up costs to
gain access to a foreign market
• Utilise under-utilised resources–human and physical and managerial skills.
• Displace existing management.
• Circumvent government regulations.
• Reap speculative gains attendant upon new security issue or change in
P/E ratio.
• Create an image of aggressiveness and strategic opportunism, empire
building and to amass vast economic powers of the company.
Financial techniques in mergers:

• Financial techniques in mergers

• Ordinary Share Financing,
• Debt & Preference Share Financing,
• Deferred Payment Plan,
• Tender Offer
 Ordinary Share Financing:
• Ordinary Share Financing When a company is
considering the use of common (ordinary) shares
to finance a merger, the relative price-earnings
(P/E) ratios of two firms are an important
consideration.
 Debt & Preference Share Financing:
• Debt & Preference Share Financing Preferred stock (also
called preferred shares , preference shares or simply
preferred ) is an equity security with properties of both an
equity and a debt instrument, and is generally considered
a hybrid instrument. Preferred are senior (i.e. higher
ranking) to common stock, but subordinate to bond in
terms of claim (or rights to their share of the company).
• Debt Financing: When a firm raises money for working
capital or capital expenditures by selling bonds, bills, or
notes to individual and/or institutional investors. In return
for lending the money, the individuals or institutions
become creditors and receive a promise that the principal
and interest on the debt will be repaid.
 Deferred Payment Plan:
• Deferred Payment Plan A purchase plan in which you
can delay paying for a purchase for a specified time,
usually by paying the amount in installments, with
interest.

Tender Offer:
• Tender Offer An offer to purchase some or all of
shareholders' shares in a corporation. The price
offered is usually at a premium to the market price.