Corporate Restructuring

1. Presentation By-
Anshu Singh

2. 
 Corporate restructuring is the process of redesigning
one or more aspects of a company. The process of
reorganizing a company may be implemented due to
a number of different factors, such as positioning the
company to be more competitive, survive a currently
adverse economic climate, or poise the corporation
to move in an entirely new direction. Here are some
examples of why corporate restructuring may take
place and what it can mean for the company.
Corporate restructuring

3.  Corporate restructuring refers to the changes in
ownership, business mix, assets mix and alliances with a
view to enhance the shareholder value.
 Hence, corporate restructuring may involve ownership
restructuring, business restructuring and assets
restructuring.

4. 
Restructuring Types
Financial
Restructuring
Portfolio &
Assets
Restructing
Organization
management
Restructurin
g

5. 
 Expansion: Mergers, Acquisitions,Takeovers,Tender
offer, JointVenture
 Contraction: Sell offs, Spin offs, Split offs,Split ups,
Divestitures, Equity Carve outs
 Corporate Control:Takeover Defenses,
ShareRepurchases, ExchangeOffers, ProxyContests
 Changes in Ownership: Leveraged Buyout,Going
Private
Types Of Restructuring

6. 
 A merger refers to the process whereby at leasttwo
companies combine to form one singlecompany.
Business firms make use of mergersand acquisitions
for consolidation of markets aswell as for gaining a
competitive edge in theindustry. Merger is a
financial tool that is usedfor enhancing long-term
profitability byexpanding their operations. Mergers
occur whenthe merging companies have their
mutualconsent as different from acquisitions, which
cantake the form of a hostile takeover.
Merger

7. 
Absorption Consolidation
Mergers or amalgamation
may take 2 forms

8. 
 Merger or amalgamation may take two forms:
 Absorption is a combination of two or more companies into an
existing company.▪
 Consolidation is a combination of two or more companies into
anew company.
 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.
Merger

9. 
 Strategic benefit: competition, entry, risk and cost
reduction Complementary resources e.g. Technology
and Marketing
 Tax benefits :accumulated losses, unabsorbed
depreciation, government incentives, sales and excise
duty benefits
 Utilization of surplus funds
 Managerial effectiveness
 Diversification
 Lower financing costs Earnings growth etc
Reasons For Mergers

10. 
Horizontal
Vertical
Concentric
Conglomerate
Types Of Merger

11. 
 A Type of Merger occurred when two companies
competing in the same line of Business Activities.
 The Effect on the Market Would be Either Large or a
little to No Effects. Number of firms in an industry
will be reduced due to Horizontal Mergers and this
may lead firms to Earn huge monopoly profits.
Horizontal mergers are regulated by government for
their negative effect on competition .Eg:In May 2010
Bank of Rajasthan with ICICI bankACC cementWith
Damodar cement
Horizontal Merger

12. 
(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

13. 
 A Merger between two companies producing different
goods or services for one Specific Finished Products.
 It refer to a situation where a product manufacturer
merges with the supplier of Inputs or Raw Materials. Also
Known as Vertical Foreclosure´.
 Cost Reduction and Minimization Of Transportation cost.
 Two Types Of Vertical Mergers
 Backward Vertical Mergers. HLL &TATA tea with tea
gardens in Assam & west Bengal. BPL. with Uptorn color
picture.
 ForwardVertical Mergers Oil companies buying up
service stations Disney’s With American Broadcasting Co.
Vertical Merger

14. 
 A type of merger where the two companies coming
together to share some common expertise that may
posses mutually advantageous. The Common
Expertise may be Managerial or Technological
Know How that may not be Industry or Product
Specific.
 In short combining two or more businesses in order
to pool expertise.
 A Merger between a Motor cycle Manufacturer and
an Automobile Manufacturer would be an Example
Concentric Merger

15. 
 Analysis of merger offer-motive ,impact on stock
price ,effect on brand image .
 Approval form Board of Directors of both the
companies for the merger.
 Approval of merger by shareholders ,bankers,
trustees
 Intimation to stock Exchange where these firms are
listed
Legal Procedure For
Merger

16. 
 Submission of application to the court.
 Submission of general meeting report of the
chairman to court.
 Hearing the petition & confirmation of merger.
 Filling Court Order with ROC by the firms.
 Integration of assets and liabilities

17. 
 This involves fusion of one or more companies
where the companies lose their individual identity
and the new company comes into existence to take
over the business of companies being liquidated.
 The merger of Brook Bond India Limited and Lipton
India Limited resulted in formation of a new
company Brook Bond Lipton India Limited.
Amalgamation

18. 
 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.
Takeover

19. 
 This involves fusion of a small company with a large
company where the smaller company ceases to exist
after the merger.
 The merger of TATA OIL MILLS company limited
(TOMCO) with Hindustan lever limited.(HLL) is an
example of absorption
Absorption

20. 
 A tender offer is a formal offer to purchase agiven
number of a company’s shares at aspecific price.
Tender offer can be used in two situations. First,
the acquiring company may directly approach
thetarget company for its takeover. If the target
companydoes not agree, then the acquiring company
may directlyapproach the shareholders by means of
a tender offer. Second, the tender offer may be used
without anynegotiations, and it may be tantamount
to a hostiletakeover
Tender Offer

21. 
 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
 This involves buying assets of another company. The
assets may be tangible assets like manufacturing unit sor
intangible like brands.
 HLL buying brands of lakme is an example of asset
acquisition.
Asset Acquisition

22. 
 his Involves two companies coming together and
forming a new company whose ownership is
changed. Generally this strategy is adopted by
MNC’s to enter into foreign companies.
 DCM Group and Daewoo Motors entered into a joint
venture to form DCM Daewoo Limited to
manufacture auto mobiles in India
Joint Venture

23. 
 Demergers means split or division of a company.
Such divisions may take place for various internal or
external factors. Internal factors generally consist of
split in the family rather than lack of competition on
the part of management.
 For Example DCM Limited was divided into four
separate companies which are being managed by
different family members of Late Shri ram
Demergers

24. 
 This type of demerger involves division of company
into wholly owned subsidiary of parent company by
distribution of all its shares of subsidiary company
on a pro-rata basis.
 For Example Kotak Mahindra finance limited
formed a subsidiary called Kotak Mahindra Capital
Corporation by spinning off its investment banking
division.
Spin Off

25. 
 Spin offs are a distribution of subsidiary shares to parent
company shareholders
 As such, no money (necessarily) comes into the parent
company as a result
 No shares (or assets) of the subsidiary are sold to the
market(IPO) or to acquirer.
 Eg;Dr.Reddy formed new drug development company
“Perlecan Pharma”
 Sun Pharma demerged its R&D as a separate entity Sun
Pharma Advance Research company to reduce R&D cost.
Central Features of Spin off

26. 
 The firm sell a part (20% or less) of its wholly owned
subsidiary’s common stock in the market. This is
similar to spin –offs, expect that some part of share
holders of this subsidiary company is offered to
public through a public issue and the parent
company continues to enjoy control over the
subsidiary company by holding controlling interest
in it.
Equity Carve outs

27. 
 his type of demerger involves the division of the
parent company into two or more separate
companies where parent company ceases to exist
after the demerger. New business entities took place
for parent firm.
Splits Ups

28. 
 These are sale of segment of a company for cash or
for securities to an outside party.
 Selling assets, divisions, subsidiaries to another
corporation or combination of corporations or
individuals
Divestitures

29. 
 Selling corporation typically receives consideration
for the assets sold
 cash
 securities
 other assets
 Divestitures are typically taxable events for selling
corporation (new basis for purchaser)
Features of Divestitures

30. 
 This involves sale of tangible or intangible assets of a
company to generate cash.
Asset Sale

31. 
 In the conventional method, thus a company is absorbed
by the profitable one (called normal merger). On the other
hand, if reverse situation takes place i.e. if sick company
extends its embracing arm to the profitable company and
in turn absorbs it in it sfold, this action is called reverse
merger. It’s a merger of healthy company into a loss
making company as compared to a normal merger where
weaker units merge into stronger one.
 The first case of reverse merger formulated by BIFR
envisaged the merger of healthy company Sagar Real
Estate Developer Limited with sick textile company SLM
Maneklal industries limited.
Reverse Mergers

32. 
Motives of Corporate
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

33. 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.
Motives of Corporate Restructuring (Cont..)