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CORPORATE RESTRUCTURING

DEFINATION PROCESS BY WHICH COMPANY CAN CONSOLIDATE ITS BUSINESS OPERATIONS AND STRENTHEN ITS POSITION FOR ACCOMPLISHING THE DESIRED OBJECTIVES.

OBJECTIVES OF CORPORATE RESTRUCTURING


GROWTH-IN ORDER TO SURVIVE ,ORGANISATION MUST GROW OVER A PERIOD OF TIME .GROWTH IS MEASURED IN TERMS OF SALES, PROFIT AND ASSETS.

2)

ECONOMIC STABILITY THE ECONOMIC CYCLES AND CONDITIONS MAY FORCE THE FIRM TO CONSOLIDATE OR DIVERSIFY THE BUSINESS OPERATIONS

TECHNIQUES OF CORPORATE RESTRUCTURING

EXPANSION DIVESTMENT OTHER TECHNIQUES

EXPANSION TECHNIQUES
MERGERS TAKEOVERS JOINT VENTURES STRATEGIC ALLIANCES FRANCHISING HOLDING COMPANIES

DIVESTMENT TECHNIQUES
SELL OFF DEMERGER MBA-MANAGEMENT BY OUT LEVERAGE BY OUT LIQUIDATION

EXPANSION
INCREASING THE EXISTING CAPACITY OF THE BUSINESS AND DOES NOT INVOLVE ANY ADDITIONAL EXPERTISE .

MERGERS ,AMALGAMATIONS,AND ACQUISITIONS


MERGER-COMBINATION OF TWO OR MORE COMPANIES INTO ONE COMPANY IS TERMED AS MERGER..INCOME TAX 1961 ,USES THE TERM AMALGAMATION FOR MERGERs.

JOINT VENTURES
JOINT VENTURE IS A FORM OF BUSINESS COMBINATION IN WHICH 2 UNAFFLIATED BUSINESS FIRMS CONTRIBUTE FINANCIAL AND PHYSICAL ASSETS ,SO THAT NEW COMPANY CAN BE FORMED AND ENGAGED.

STRATEGIC ALLIANCE
STRATEGIC ALLIANCE IS THE ARRANGEMENT OR AGREEMENT UNDER WHICH TWO OR MORE FIRMS COOPERATE IN WHICH BOTH THE FIRMS ACHIEVE COMMERCIAL OBJECTIVES.

FRANCHISING
IT IS AN IMPORTANT MEANS OF DOING THE BUSINESS IN SEVERAL COUNTRIES .ITS CONCEPT COVERS THE EXTENSIVE RANGE OF MARKETING AND ARRANGEMENTS OF GOODS AND SERVICES .

DIVESTMENT TECHNIQUES
SELL OFF-DIVESTURE IS SALE OR DISPOSITION OF ASSET . DEMERGER-ACT OF SPLITTING OF A PART OF EXISTING COMPANY TO BECOME A NEW COMPANY. SLUMP SALE-TRANSFER OF WHOLE OR A PART OF THE BUSINESS CONCERN IS A SLUMP SALE.OR WHEN A COMPANY SELLS OR DISPOSES WHOLE OF THE UNDERTAKING IS SLUMP SALE.

4-MBO-Purchase of a business by its management when existing owners are trying to sell its business to third parties due to its slow growth or lack of managerial skills in running the business. 5)LBO-method of acquiring a company with money that is nearly all borrowed. 6)LIQUIDATION-Owners decide to liquidate the business to stop further losses.

Mergers(Amalgamation)
Combination of two or more companies into one company is merger. FORMS OF MERGERS MERGER THROUGH ABSORPTION MERGER THROUGH CONSOLIDATION. 1)MERGER THROUGH ABSORPTION MEANS-An absorption is a combination of two or more companies into an 'existing company'. All companies except one lose their identity in such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL, an acquiring company (a buyer), survived after merger while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets, liabilities and shares to TCL

2)MERGERS THROUGH CONSOLIDATION


Merger through Consolidation:- A consolidation is a combination of two or more companies into a 'new company'. In this form of merger, all companies are legally dissolved and a new entity is created. TYPES OF MERGERS Horizontal merger:- is a combination of two or more firms in the same area of business. For example, combining of two book publishers or two manufacturing companies in same area.

VERTICAL MERGERS
Vertical merger:- is a combination of two or more firms involved in different stages of production or distribution of the same product. For example, joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

CONGLOMERATE MERGERS
Conglomerate merger:- is a combination of firms engaged in unrelated lines of business activity. For example, merging of different businesses like manufacturing of cement products, fertilizer products, electronic products, insurance investment and advertising agencies. L&T and Voltas Ltd are examples of such mergers.

LEGAL PROCEDURE FOR MERGERS


Companies Act 1956,this Act lays down the legal procedure Permission for merger:- Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association. Information to the stock exchange:- The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger.

3) Approval of board of directors:The board of directors of the individual companies should approve the draft proposal for amalgamation and authorise the managements of the companies to further pursue the proposal.

4)Application in the High Court:- An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court.

5)Shareholders' and creators' meetings:- The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme 6)Sanction by the High Court:- After the approval of the shareholders and creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated.

7 Filing of the Court order:- After the Court order, its certified true copies will be filed with the Registrar of Companies. 8 Transfer of assets and liabilities:- The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date.

9 - Payment by cash or securities:- As per the proposal, the acquiring company will exchange shares ,cash of the acquired company. These securities will be listed on the stock exchange.

REVERSE MERGERS
An act where a private company purchases a Publicly traded company and shifts its management into it .it also involves rename of the publicly traded companies..this allows private companies to become publicly traded companies. In other words- reverse merger, privately held company purchases a publicly held company and, as part of the new entity, becomes public TRADED COMPANY

Cost of Merger
Another Facet of Merger consideration is the cost of Merger The cost is divided into two parts Direct Monetary Cost and Human Resource Cost DMC Includes-Legal Costs, depending on the organizing of the Mergers, documents and filling required by state law. A Merger can also face other legal complexities-Consultant Fees-Depending on the Merger need what type of services one asks the consultant to provide.

Other Monetary costs are-Relocation or moving expenses involved with personal issues.Etc.

Human resource Costs HRC are difficult to estimate The major factor involved in staff time includes Committee meeting and meeting of shareholders,Members and Directors

DETERMINATION OF SWAP RATIOS


SWAP RATIOS The ratio in which an acquiring company will offer its own shares in exchange for the target company's shares during a merger or acquisition. To calculate the swap ratio,companies analyze financial ratios such as book value, earnings per share, profits after tax and dividends paid, as well as other factors, such as the reasons for the merger or acquisition.

Lets takes an example of two companies to know what happens to the stock.
Company A Share price -400 Total number of shares-52M Market capitalisation20800 M company B Share price -150 Total number of shares76M Market Capitalisation 11400 M

;l;
The two individual companies A and B get merged into single entity AB.The new company decides to issue 60Millions of shares of the new entity to the existing shareholders. Total market capitalisation of both the companies will be 20800+11400=32200 million Now finding up the value company A should have 20800(20800+11400)= 65% is market capitalisation after the merger and company B should have 11400(20800+11400)=35%

Number of shares company A after Merger =60 *65/100 =39 Million shares Number of shares company B after merger =60 *35/100=21 million shares. Merger swap ratio of Company A will be = old shares held by A/shares of company A after Merger= 52/39 =4:3 same as Merger swap ratio of company B=old shares held by B /shares of company B after Merger =76/21 =3.62:1.

Distress Restructuring
Distress causes due to poor structuring of working capital at various levels of business like work in progress , bills receivable. companies must undertake restructuring strategies and activities to come of these problems.This term Distress Restructuring belongs to the term Corporate Finance.

Financial( distress) Restructuring


A situation where a firms operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action. Financial distress may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors.

Definition of terms
A situation where a firms operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action. Financial distress may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors. Financial Distress
Includes default and bankruptcy, but also Threat of default or bankruptcy and its effect on the company Defined to capture the costs and benefits of using large amounts of debt finance

INSOLVENCY

Cash flow shortfall

Contractual obligations Firm cash flow


time

What happens in financial distress


No financial restructuring
49%

Financial distress
51% 47%

Private workout

Financial restructuring
83% 53%

Reorganize and emerge

Legal bankruptcy Chapter 11

7%

Merge with another firm

10%

Liquidation

BUY BACK OF SHARES


Buyback is reverse of issue of shares by a company where itoffers to take back its shares owned by the investors at aspecified price. How is it Done: Tender Offer :-Shareholder have an option to submit a portion OR to submit all shares. Dutch Auction :-Companies state a range of price at which its willing to accept & buy.

Why buy back is done


Why Companies Go For Buy Back :Increase Promoters Stake Unused Cash Market Perception Exit Option monitoring of accounts and legal controls Show rosier financials

EXAMPLE
Buy Back Of Reliance Energy:equity shares of the company in the morning on Tuesday at nearly Rs.1,279.23/share Reason:- To increase the price of its shares. Result:-At noon Friday, shares of the company were trading at Rs.1,310 up by Rs.28.20 from its previous close

Mr. Anil Ambani (Reliance Energy) bought back 6,50,000

Act For Buy Back Of Shares:Section 77A, 77AAand 77B of the Companies Act,1956

THANKYOU

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