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CORPORATE RESTRUCTURING

MEANING
Corporate Restructuring is a comprehensive process by which a company can consolidate its business operations and strengthen its position for achieving its short term and long term corporate objectives-synergistic, dynamic continuing as a competitive and successful entity.

OBJECTIVES OF CORPORATE RESTRUCTURING


Orderly redirection of the firms activities. Deploying surplus cash from one business to finance profitable growth in another firm. Exploiting inter-dependence among present or prospective businesses within the corporate portfolio. Risk reduction. Development of core competencies.

KINDS OF RESTRUCTURING
Financial Restructuring Technological Restructuring Market Restructuring Organisational Restructuring

Most commonly applied tools of corporate restructuring are Financial Restructuring i.e., amalgamation, merger, demerger, slump sale, acquisition, joint venture, disinvestment, strategic alliance and franchises

AMALGAMATION
Amalgamation is a legal process by which two or more companies are joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company losses its existence and its shareholders become the shareholders of the new or amalgamated company.

MERGER
A merger is an arrangement where by the assets of two or more companies become vested in, or under the control of one company (which may or may not be one of the original two companies), which has as its shareholders all or substantially all, the shareholders of the two companies.

OBJECTIVES OF MERGER
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Limiting Competition Market Leadership Improving Economies of Scale Operating Economies Financial Benefits Acquiring New product or Brand name Diversifying the portfolio Strategic integration Synergy Taxation or Investment incentives.

DEMERGER
In demerger, company sells and transfers one or more of its undertaking to the resulting company for an agreed consideration.

SLUMP SALE
In slump sale, a company sells or disposes whole or substantially the whole of its undertaking for a lump sum predetermined consideration. The sale is made for lump sum price without value being assigned to the individual assets and liabilities transferred.

TAKEOVER
Takeover is a strategy of acquiring control over the management of another company- either directly by acquiring shares or indirectly by participating in the management.

Kinds: 1. Friendly Takeover 2. Hostile Takeover 3. Bail Out Takeover

DISINVESTMENT
Disinvestment is another strategic initiative from the point of view of public sector enterprises. It refers to transfer of assets or service delivery from the government to the private sector.

JOINT VENTURE
Joint venture imply the existence of a strategic business policy where by a business enterprise is formed for profit in which two or more parties share responsibilities in an agreed manner , by providing risk capital, technology, patent/trademark/brand names and access to market. Mostly parties

hailing from different countries in a venture to form joint venture which contribute in expansion of production capacity, transfer of technology and penetration into the global market.

FRANCHISING
Franchising is a contract, either expressed or implied, written or oral, between two persons or parties by which franchisee is granted the right to engage in the business of offering, selling, distributing goods and services prescribed in the substantial part by franchiser. Operation of franchisees business is substantially associated with franchisers trademark.

STRATEGIC ALLIANCES
Any arrangement or agreement under which two or more firms co-operate in order to achieve certain commercial objectives is called Strategic Alliance. Features: 1. It often motivated by considerations such as reduction in cost, technology sharing, product development, market access to capital. 2. It facilitates a market entry strategy, which maximize returns and reduces economic risk and exposures.

3. It is gaining importance in infrastructure sector. 4. The basic idea is to pool resources and facilitate innovative ideas and techniques while implementing large projects. 5. It is sequential process which consist of strategic situation analysis and strategic choice analysis.

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