Corporate restructuring is 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.
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Organization& management restructuring

Portfolio & asset restructuring

Financial restructuring

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Expansion: Mergers, Acquisitions, Takeovers, Tender offer, Joint Venture Contraction: Sell offs, Spin offs, Split offs, Split ups, Divestitures, Equity Carve outs Corporate Control: Takeover Defenses, Share Repurchases, Exchange Offers, Proxy Contests Changes in Ownership: Leveraged Buyout, Going Private.
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A merger refers to the process whereby at least two companies combine to form one single company. Business firms make use of mergers and acquisitions for consolidation of markets as well as for gaining a competitive edge in the industry. Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. Mergers occur when the merging companies have their mutual consent as different from acquisitions, which can take the form of a hostile takeover.
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 Merger or amalgamation 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 a new 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.

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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.
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Horizontal Mergers.
Vertical Mergers. Conglomerate Mergers.

Concentric Mergers.

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A Type of 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. In May 2010 Bank of Rajasthan with ICICI bank ACC cement With Damodar cement.
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A Merger between 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. Three Types Of Vertical Mergers Backward Vertical Mergers.-HLL &TATA tea with tea gardens in Assam & west Bengal. BPL. with Uptorn color picture. Forward Vertical Mergers-Oil companies buying up service stations Disneys With American Broadcasting Co.

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A Merger Between Firms that are involved in totally unrelated business activities . Two Types of Conglomerate mergers; i.e. Pure and Mixed.

The main reason behind this kind of Merger are increasing Market Share, Synergy and Cross Selling. They also Merged to diversify and reduce their risk Exposure. Exp: the Merger between Walt Disney company and the American Broadcasting Company.

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A type of 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.
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Analysis of merger 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.
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Submission of application 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.

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This involves fusion 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.
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The term takeover 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.
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This involves fusion 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.

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A tender offer is a formal offer to purchase a given number of a companys shares at a specific price. Tender offer can be used in two situations.
First, the acquiring company may directly approach the

target company for its takeover. If the target company does not agree, then the acquiring company may directly approach the shareholders by means of a tender offer. Second, the tender offer may be used without any negotiations, and it may be tantamount to a hostile takeover.
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This involves making a public offer for acquiring the shares of a target company with a view to acquire management control in that company. Take over by TATA Tea of consolidated coffee limited (CLL) is an example of tender offer where more than 50% of share holders of CLL sold their holdings to TATA Tea at the offered price which was more than the investment price.
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Acquisition may be 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 units or intangible like brands. HLL buying brands of lakme is an example of asset acquisition.
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This Involves two companies coming together and forming a new company whose ownership is changed. Generally this strategy is adopted by MNCs 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.
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Demergers means split 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.
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This type of 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.
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Spin offs are 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.

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The firm sell a part (20% or less) of its wholly owned subsidiarys 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.
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This type of 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.

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These are sale 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

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Selling corporation typically receives consideration for the assets sold cash securities other assets Divestitures are typically taxable events for selling corporation (new basis for purchaser) Example of Divestiture: JLR

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This involves sale of tangible or intangible assets of a company to generate cash.

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This involves converting a listed companies into a private company by buying back all the outstanding shares from the markets.

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This involves the company buying its own shares back from the market. This results in reduction in the equity capital of the company. This strengthens the promoters position by increasing his stake in the equity of the company. On 11th Aug.2011,Reliance infratructure,Anil Dhirubhai Ambani Group, announced its buy back shares plan worth Rs.1000 crore.
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A leveraged buy-out This involves raising of capital from the market or institutions by the management to acquire a company on the strength of its assets.(LBO) is an acquisition of a company in which the acquisition is substantially financed through debt. When the managers buy their company from its owners employing debt, the leveraged buy-out is called management buy-out (MBO).

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In the conventional 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 its fold, this action is called reverse merger. Its 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.

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OPERATIONAL SYNERGY
SYNERGY

FINANCIAL SYNERGY
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Labor Economies of scale

Technical Economies of scale

Production Economies of scale

Marketing Economies of scale
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Managerial Economies of scale

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Bulk purchasing at low cost

Monoposonistic Advantage

Pecuniary Economies of scale

Low credit rate

Low cost of transportation

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Diversification

Increasing borrowing capacity

Tax benefits

Avoiding capital rationing

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The process of financial evaluation begins with determining the value of the target firm, which the acquiring firm should pay. The total purchase price or price per share of the target firm may calculated by taking into account a host of factors such as, assets, earnings etc.The market price of a share of the target firm can be a good approximation to find out the value of the firm.
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Valuation based on assets

value of all assets-External liabilities

I.

Book value of the assets

II.

Realizable value of the assets

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Valuation based on earnings

Market price per share=EPS*PE Ratio OR Value=Earnings/Capitalization rate*100

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Dividend based valuation

P0=D0(1+g)/Ke-g E.g. A company has paid a dividend of Rs. 15 per share & growth rate in dividend is 7%.At equity capitalization rate of 20% the market price of the share is?

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PAYMENT IN SHARES
PAYMENT IN CASH
MODE OF PAYMENT

LEVERAGE BUY-OUT

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PAYMENT IN CASHThis does not effect the ownership pattern of the acquiring firm but requires the availability of sufficient liquidity with the acquiring firm. The payment in cash is subject to the agreement & consent of the shareholders of the target firm as for shareholders it raise their tax liability.
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Payment in shares The shares of the target firm are exchanged for the shares in the acquiring firm thus it will result into: I. Increasing the number of shares in acquiring firm. II. Sharing the ownership of acquiring firm by existing shareholder of the acquiring firm & its new shareholders.

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LEVERAGE BUY-OUT In case of LBO, the takeover of the target company is leveraged by borrowing from banks & other institutions against the assets of the target company. For this purpose, a Special Purpose Vehical may be incorporated as a subsidiary of the acquirer. Out of the equity contribution of acquirer & borrowing by SPV, the payment is made by SPV for the target.
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There are different methods of calculation of share exchange ratio: Based on EPS: EPS of target firm/EPS of acquiring firm Based on market price: MP of target firms share/MP of acquiring firms share Based on book value: BV of share of target firm/BV of share of acquiring firm
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THANK YOU

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