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Corporate restructuring


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Corporate restructuring

  1. 1.  Corporate restructuring is the process ofredesigning one or more aspects of a company.The process of reorganizing a company may beimplemented due to a number of differentfactors, such as positioning the company to bemore competitive, survive a currently adverseeconomic climate, or poise the corporation tomove in an entirely new direction. Here aresome examples of why corporate restructuringmay take place and what it can mean for thecompany.1RubySharma, CBS ,Landran,Mohali
  2. 2. FinancialrestructuringPortfolio &assetrestructuringOrganization&managementrestructuring2RubySharma, CBS ,Landran,Mohali
  3. 3.  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.3RubySharma, CBS ,Landran,Mohali
  4. 4.  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.4RubySharma, CBS ,Landran,Mohali
  5. 5. Absorption ConsolidationRubySharma, CBS ,Landran,Mohali 5
  6. 6.  Merger or amalgamation may take two forms:▪ Absorption is a combination of two or more companies into anexisting company.▪ Consolidation is a combination of two or more companies into anew company. In merger, there is complete amalgamation of the assetsand liabilities as well as shareholders’ interests andbusinesses of the merging companies. There is yet anothermode of merger. Here one company may purchaseanother company without giving proportionate ownershipto the shareholders’ of the acquired company or withoutcontinuing the business of the acquired company.6RubySharma, CBS ,Landran,Mohali
  7. 7.  Strategic benefit: competition, entry, risk and costreduction Complementary resources e.g.Technology and Marketing Tax benefits :accumulated losses, unabsorbeddepreciation, government incentives, sales andexcise duty benefits Utilization of surplus funds Managerial effectiveness Diversification Lower financing costs Earnings growth etc.7RubySharma, CBS ,Landran,Mohali
  8. 8. MergerHorizontalVertical ConcentricConglomerateRubySharma, CBS ,Landran,Mohali 8
  9. 9. AType of Merger occurred when two companies competing inthe same line of Business Activities.The Effect on the Market Would be Either Large or a little to NoEffects.Number of firms in an industry will be reduced due toHorizontal Mergers and this may lead firms to Earn hugemonopoly profits.Horizontal mergers are regulated by government fortheir negative effect on competition.Eg:In May 2010 Bank of Rajasthan with ICICI bankACC cementWith Damodar cement.9RubySharma, CBS ,Landran,Mohali
  10. 10.  A Merger between two companies producing different goodsor services for one Specific Finished Products. It refer to a situation where a product manufacturer mergeswith the supplier of Inputs or Raw Materials. Also Known asVertical Foreclosure´. Cost Reduction and Minimization OfTransportation cost. TwoTypes OfVertical Mergers BackwardVertical Mergers.HLL &TATA tea with tea gardens in Assam & west Bengal.BPL. with Uptorn color picture. ForwardVertical MergersOil companies buying up service stationsDisney’s With American Broadcasting Co.10RubySharma, CBS ,Landran,Mohali
  11. 11.  A Merger Between Firms that are involved intotally unrelated business activities . TwoTypes of Conglomerate mergers; i.e. Pureand Mixed. The main reason behind this kind of Merger areincreasing Market Share, Synergy and CrossSelling. They also Merged to diversify and reduce theirrisk Exposure. Exp: the Merger betweenWalt Disney companyand the American Broadcasting Company.11RubySharma, CBS ,Landran,Mohali
  12. 12.  A type of merger where the two companies comingtogether to share some common expertise that mayposses mutually advantageous.The CommonExpertise may be Managerial orTechnological KnowHow that may not be Industry or Product Specific. In short combining two or more businesses in orderto pool expertise. A Merger between a Motor cycle Manufacturer and anAutomobile Manufacturer would be an Example.12RubySharma, CBS ,Landran,Mohali
  13. 13.  Analysis of merger offer-motive ,impact onstock price ,effect on brand image. Approval form Board of Directors of both thecompanies for the merger Approval of merger by shareholders ,bankers, trustees Intimation to stock Exchange where thesefirms are listed.13RubySharma, CBS ,Landran,Mohali
  14. 14.  Submission of application to the court Submission of general meeting report of thechairman to court Hearing the petition & confirmation ofmerger. FillingCourt Order with ROC by the firms. Integration of assets and liabilities.14RubySharma, CBS ,Landran,Mohali
  15. 15.  This involves fusion of one or morecompanies where the companies lose theirindividual identity and the new companycomes into existence to take over thebusiness of companies being liquidated. The merger of Brook Bond India Limited andLipton India Limited resulted in formation ofa new company Brook Bond Lipton IndiaLimited.15RubySharma, CBS ,Landran,Mohali
  16. 16.  The term takeover is understood to connotehostility. When an acquisition is a ‘forced’ or‘unwilling’ acquisition, it is called a takeover. A holding company is a company that holdsmore than half of the nominal value of theequity capital of another company, called asubsidiary company, or controls thecomposition of its Board of Directors. Bothholding and subsidiary companies retain theirseparate legal entities and maintain theirseparate books of accounts.16RubySharma, CBS ,Landran,Mohali
  17. 17.  This involves fusion of a small company witha large company where the smaller companyceases to exist after the merger. The merger ofTATA OIL MILLS companylimited (TOMCO) with Hindustan leverlimited.(HLL) is an example of absorption.17RubySharma, CBS ,Landran,Mohali
  18. 18.  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.18RubySharma, CBS ,Landran,Mohali
  19. 19.  This involves making a public offer foracquiring the shares of a target company witha view to acquire management control in thatcompany. Take over byTATATea of consolidated coffeelimited (CLL) is an example of tender offerwhere more than 50% of share holders of CLLsold their holdings toTATATea at the offeredprice which was more than the investmentprice.19RubySharma, CBS ,Landran,Mohali
  20. 20.  Acquisition may be defined as an act of acquiringeffective control over assets or management of acompany by another company without anycombination of businesses or companies. Asubstantial acquisition occurs when an acquiring firmacquires substantial quantity of shares or voting rightsof the target company This involves buying assets of another company.Theassets may be tangible assets like manufacturing unitsor intangible like brands. HLL buying brands of lakme is an example of assetacquisition.20RubySharma, CBS ,Landran,Mohali
  21. 21.  This Involves two companies comingtogether and forming a new company whoseownership is changed.Generally this strategyis adopted by MNC’s to enter into foreigncompanies. DCM Group and Daewoo Motors entered intoa joint venture to form DCM Daewoo Limitedto manufacture auto mobiles in India.21RubySharma, CBS ,Landran,Mohali
  22. 22.  Demergers means split or division of acompany. Such divisions may take place forvarious internal or external factors. Internalfactors generally consist of split in the familyrather than lack of competition on the part ofmanagement. For Example DCM Limited was divided intofour separate companies which are beingmanaged by different family members ofLate Shri ram.22RubySharma, CBS ,Landran,Mohali
  23. 23.  This type of demerger involves division ofcompany into wholly owned subsidiary ofparent company by distribution of all itsshares of subsidiary company on a pro-ratabasis. For Example Kotak Mahindra finance limitedformed a subsidiary called Kotak MahindraCapitalCorporation by spinning off itsinvestment banking division.23RubySharma, CBS ,Landran,Mohali
  24. 24.  Spin offs are a distribution of subsidiary sharesto parent company shareholders: As such, no money (necessarily) comes into theparent company as a result No shares (or assets) of the subsidiary are sold tothe market(IPO) or to acquirer. Eg;Dr.Reddy formed new drug developmentcompany “Perlecan Pharma” Sun Pharma demerged its R&D as a separateentity Sun Pharma Advance Research companyto reduce R&D cost.24RubySharma, CBS ,Landran,Mohali
  25. 25.  The firm sell a part (20% or less) of its whollyowned subsidiary’s common stock in themarket.This is similar to spin –offs, expectthat some part of share holders of thissubsidiary company is offered to publicthrough a public issue and the parentcompany continues to enjoy control over thesubsidiary company by holding controllinginterest in it.25RubySharma, CBS ,Landran,Mohali
  26. 26.  This type of demerger involves the division ofthe parent company into two or moreseparate companies where parent companyceases to exist after the demerger. Newbusiness entities took place for parent firm.26RubySharma, CBS ,Landran,Mohali
  27. 27.  These are sale of segment of a company forcash or for securities to an outside party. Selling assets, divisions, subsidiaries toanother corporation or combination ofcorporations or individuals27RubySharma, CBS ,Landran,Mohali
  28. 28.  Selling corporation typically receivesconsideration for the assets sold cash securities other assets Divestitures are typically taxable events forselling corporation (new basis for purchaser) Example of Divestiture:JLR28RubySharma, CBS ,Landran,Mohali
  29. 29.  This involves sale of tangible or intangibleassets of a company to generate cash.29RubySharma, CBS ,Landran,Mohali
  30. 30.  In the conventional method, thus a company isabsorbed by the profitable one (called normalmerger). On the other hand, if reverse situation takesplace i.e. if sick company extends its embracing armto the profitable company and in turn absorbs it in itsfold, this action is called reverse merger. It’s a mergerof healthy company into a loss making company ascompared to a normal merger where weaker unitsmerge into stronger one. The first case of reverse merger formulated by BIFRenvisaged the merger of healthy company Sagar RealEstate Developer Limited with sick textile companySLM Maneklal industries limited.30RubySharma ,CBS ,Landran ,Mohali
  31. 31. THANKYOU31RubySharma, CBS ,Landran,Mohali