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Corporate restructuring
Corporate restructuring refers to changes in a company's ownership, business model, assets, or alliances to improve shareholder value. It can involve reorganizing ownership, business operations, or assets. Common types of restructuring include mergers, acquisitions, divestitures, spin-offs, and joint ventures. Mergers are done horizontally within an industry, vertically with suppliers or customers, concentrically to share expertise, or conglomerately across industries. The goal is often to gain competitive advantages through economies of scale, expanded resources or markets, or reduced costs. Regulatory approval and shareholder approval are typically required for major restructuring transactions.
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Corporate restructuring
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- 2. Corporate restructuringis 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 restructuringrefers 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.
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- 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 mergerrefers 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 oramalgamation may take 2 forms
- 8. Merger oramalgamation 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
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- 11. A Typeof 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 Mergerbetween 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 typeof 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 ofmerger 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 ofapplication 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 involvesfusion 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 termtakeover 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 involvesfusion 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 tenderoffer 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 maybe 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 Involvestwo 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 meanssplit 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 typeof 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 offsare 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 firmsell 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 typeof 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 aresale 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 corporationtypically 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 involvessale of tangible or intangible assets of a company to generate cash. Asset Sale
- 31. In theconventional 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–humanand 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..)