Introduction:• One of the dictionary meaning of word “restructuring” is “rearrangement” thus business restructuring refers to rearrangement of corporate structure .• It is a process by which a business organizations alters its present structure in order to create a new structure in the place of its existing structure.• Business restructuring may involve change in the asset structure, liability structure or both of them.
Importance: In today‟s world, along with increasing focus on globalization and liberalization, there is free competition amongst businesses. So Business restructuring helps to identify the opportunities. It helps the business to survive and stay the fittest from the rest others. It plays an important role in the external and internal growth of the organization.
Advantages: Strategic Benefit Economies of Scale Economies of Scope Economies of Vertical Integration Complementary Resources Tax Shields Utilization of Surplus Funds Managerial Effectiveness
Reasons: To reduce the cost of operations for the company. To make company more competitive as compared to other peers in industry. To reduce the interest burden for the company.
Advantages: To utilize the excess capacities. company will go for corporate restructuring so as to improve shareholders confidence in the company. Another reason for corporate restructuring is when company is into too many businesses or over diversified it may want to & concentrate only on one business
Acquisition An Acquisition is an act of acquiring effective CONTROL by one company over assets or management of another company. Acquisition is also called as “TAKEOVER”
Types of Acquisitions Asset Purchase Slump Sale. eg- Grasim sold sponge iron unit to Welspun power for 1030 crore. Itemized Sale. Share Purchase. eg – Daiichi sankyo company ltd has acquired controlling stake of Ranbaxy.
Case Study- TATA - JLR deal Features of this acquisition- Tata Motors Ltd. announced the acquired two iconic British brands - Jaguar and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3 billion. Purchase consideration were JLRs manufacturing plants, two advanced design centers in the UK, national sales companies spanning across the world, and also licenses of all necessary intellectual property rights.
Why did TATA go for JLR? (Adv. Of Acquisition) Expanding its international footprint leveraging on in-house capabilities Enter the high-end premier segment of the global automobile market latest technology due to two advance design studios and technology Instant recognition competitive advantage as Corus was the main supplier of automotive high grade steel to JLR and other automobile industry in US and Europe
Case Against Acquisition- (Disadvantages Of Acquisition) Ford purchased JLR at $5 bn and sold at almost half the price to TATA after operating it for losses. Ford failed to re-brand and integrate these luxury brands with its product portfolio Increased the earnings volatility. Had to Fuse in another US$ 1 billion in JLR. Tata Motors raised $3 billion (about Rs 12,000 crore) through bridge loans for 15 months from a clutch of banks, including JP Morgan, Citigroup, and State Bank of India
Definition of Merger? The combining of two or more companies , generally by offering the stockholders of one company securities in the acquiring company in exchange of the surrender of their stocks.
Types of Mergers?A) Vertical merger: Merger with supplier or customers. Ex : Kochi Refineries Ltd merges into Bharat Petroleum Corporation India.B) Horizontal merger: Between firms in the same kind of business. Ex : Centurion Bank of Punjab merging into HDFC
Case study on ADIDAS-REEBOKMerger!!! In August 2005,german Adidas Salomon AG announced to acquire Reebok at an estimated value of $3.78 billion. At that time Adidas reported net income of $423 million per year whereas Reebok had an net income of $209 million. Merger was a sense because both companies competed for no.2 and no.3 positions following Nike being at the top.
The facts of case-study?? Why merger done?? Advantages of merger?? Dis-advantages of merger??
Demerger The tranfer by a company of one or more of its business division to another company which is newly set. It is a converse of merger. It result into two company i.e., demerged company and resultant company.
Types of demergers The demergers may be of two types:- Split-up Demergers. Spin-off Demergers. Divestiture.
Case Study On bajajcompany The effective date of demerger of baja company was on 20th february 2008. Bajaj was demergered into Bajaj Auto Ltd. and Bajaj finance ltd. After demerger of bajaj 5.6% growth in the company.
Other formssubsidiarisation: Transferring a business to a wholly owned subsidiary Under this option business gets transferred to a subsidiary and the parent company continue to hold 100% equity stake in the subsidiaryEg: EID Parry (india) limited transferred the parryware division to a wholly owned subsidiary(Parryware glamourooms pvt. Ltd.)
Buyback of Shares Buyback is acquiring its own shares from the existing shareholders by the company.E.g.: Philips Electronics India Limited Gitanjali Gems Limited
objectives To return surplus cash to shareholders as an alternative to a higher dividend payment or investing the surplus cash in existing or new operations. Adjust or change the company‟s capital structure quickly, say for those companies seeking to increase its debt/equity ratio. To improved the various performance parameters like EPS,DPS, operating cash flow per share, etc. To thwart the attempts of a hostile takeover.
Capital ReductionReduction of share capital may be effected inthe following ways: In respect of share capital not paid-up, extinguishing or reducing the liability on any of its shares; Cancel any paid-up share capital, which is lost, or is not represented by available assets. This may be done either with or without extinguishing or reducing liability on any of its Shares; or
Pay off the paid-up share capital, which is in excess of the needs of the company. This may be achieved either with or without extinguishing or reducing liability on any of its sharesE.g.: Hindalco Industries Limited under took a court scheme to write off following “Expenses” against balance in share premium account- Impairment of assets, investments, Goodwill and other intangible assets on consolidation. Interest on borrowing on acquisition
Diminution in value of subsidiaries Costs associated with existing projects/divisions Consultants fees in connection with financing of acquisition
Management Buyouts Involves the management team’s purchase of the bulk of the firm’s shares. Create a win-win situation for shareholders who receive a premium for their stock and management who retain control. To avoid lawsuits, the price paid must represent a higher premium to the current market price. Alternatively, the target may make itself less attractive by divesting assets the bidder wants. Cash proceeds of the sale could fund other defenses such as share buybacks
Leveraged Buyouts Borrowed funds are used to pay for all or most of the purchase price. Can be of an entire company or divisions of a company The tangible assets of the company are used as collateral for the loans Investors in LBOs are referred to as financial buyers because they are primarily focused on relatively short- to intermediate- term financial returns
Stock Exchange Norms Stock Exchange NormsPresently, Stock Exchange(s) are providing various other norms before giving approval to the Companies for „Merger‟, „Demerger‟ „Reduction of Capital‟
Stock Exchange NormsMinimum Capital Requirements Issued & paid up Equity Capital – Rs 10 crores(if there is a change in management/control)OR Issued & paid up Equity Capital – Rs 3 crores(If there is no change in management/control)AND Minimum Net Worth – 20 crores(Post amalgamation) *BSE Stipulations
Stock Exchange NormsContinuous Listing Norms (Transferee Co is Listed Co. & Transferor Co is Unlisted Co.) Non- Promoter Holding – 25% of Post -merger Capital* (The entire holding of the shareholders of the transferor company be excluded) If Non- Promoter Holding – is less than 25% of Post merger capital, then the company has to go for offer for sale of the excess portion.
Stock Exchange’s Views• Valuations Analysis• No undue benefit to Promoters/Particular group• Investors interest not to be affected• Back door Entry for the benefit of listing• Change in Management/control
Methodology Issues Methodology for Merger and Acquisition are different. Types of Business. Government Regulations. Industry Specific Methods Difficult in obtaining Transaction multiples. Issues Related to Market price method.
Adjustment in Valuation Accounting Policy Contigent liability and assets Sales tax Exemption Preference shares ESOPs and Warrants Carried forward loss
Legal Procedure of BusinessRestructuring Examination of Object Clauses Intimation of Stock Exchange Approval of the Draft Amalgamation Proposal by the Respective Boards Application to the High Courts Dispatch of notice to Shareholders and Creditors
Cont… Holdings of Meetings of Shareholders and Creditors Petition to the High Court for Confirmation and passing of High Court Filing the Order with the Registrar Transfer of Assets and Liabilities Issue of Shares and Debentures
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