25th Oct

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25th Oct

  1. 1. Corporate restructuring 25 th October 2009
  2. 2. Starting point <ul><li>Value </li></ul><ul><li>Value drivers </li></ul><ul><li>- level of fcf from operations </li></ul><ul><li>- quantum of cash required for future, wc </li></ul><ul><li>- discount rate </li></ul>
  3. 3. Definition <ul><li>Includes a broad range of activities to continually reposition the firm against the fast changing business environment for maximization of shareholder value </li></ul><ul><li>- Portfolio and asset restructuring </li></ul><ul><li>- m&a </li></ul><ul><li>- divestitures </li></ul><ul><li>- Financial engineering </li></ul><ul><li>- Internal streamlining </li></ul>
  4. 4. Portfolio and asset restructuring <ul><li>M&A </li></ul><ul><li>- merger </li></ul><ul><li>- purchase of asset/ business entity </li></ul><ul><li>- substantial acquisition of shares </li></ul><ul><li>(b) Divestitures </li></ul><ul><li>- divestment of asset/ business entity </li></ul><ul><li>- divestment of controlling stake </li></ul><ul><li>- spin-off into a separate legal entity </li></ul><ul><li>- split-off – shares in subsidiary in lieu of shares in parent </li></ul><ul><li>- split-up – parent company no longer exists, non-operating company </li></ul><ul><li>-equity carveout – IPO of a subsidiary, cash inflow </li></ul>
  5. 5. Financial engineering <ul><li>Alteration in D/E </li></ul><ul><li>Issues of different classes of shares (pref, non-voting) </li></ul><ul><li>Issues of various type of debts </li></ul><ul><li>Buyback </li></ul><ul><li>Infusion of foreign debt and equity </li></ul>
  6. 6. Internal streamlining <ul><li>Downsizing </li></ul><ul><li>Cost reduction programmes </li></ul><ul><li>Closure of uneconomic units </li></ul><ul><li>Change in structure, systems (including HR systems) and processes </li></ul>
  7. 7. Valuation
  8. 8. Misconceptions about Valuation <ul><li>Myth 1: A valuation is an objective search for “true” value </li></ul><ul><li>• Truth 1.1: All valuations are biased. The only questions are how much and </li></ul><ul><li>in which direction. </li></ul><ul><li>• Truth 1.2: The direction and magnitude of the bias in your valuation is directly proportional to who pays you and how much you are paid. </li></ul><ul><li>Myth 2.: A good valuation provides a precise estimate of value </li></ul><ul><li>• Truth 2.1: There are no precise valuations </li></ul><ul><li>• Truth 2.2: The payoff to valuation is greatest when valuation is least precise. </li></ul><ul><li>Myth 3: . The more quantitative a model, the better the valuation </li></ul><ul><li>• Truth 3.1: One’s understanding of a valuation model is inversely proportional to the number of inputs required for the model. </li></ul><ul><li>• Truth 3.2: Simpler valuation models do much better than complex ones. </li></ul>
  9. 9. Approaches to Valuation <ul><li>Discounted cashflow valuation , relates the value of an asset to the present value of expected future cashflows on that asset. </li></ul><ul><li>Relative valuation , estimates the value of an asset by looking at the pricing of 'comparable' assets relative to a common variable like earnings, cashflows, book value or sales. </li></ul><ul><li>Contingent claim valuation , uses option pricing models to measure the value of assets that share option characteristics. </li></ul><ul><li>Adjusted Book Value Method , the book value on a company's balance sheet after assets and liabilities are adjusted to market value. also called modified book value. </li></ul>

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