CORPORATE RESTRUCTURING

BY PROF. DIPTI PERIWAL MBA (FINANCE) .

Restructuring
A significant modification made to the debt,

operations or structure of a company.

The reorganization of a company in order to attain

greater efficiency and to adapt to new markets

RESTRUCTURING
Restructuring may be resorted in the following cases: To turnaround a sick unit. To prevent a unit from becoming sick. To further improve performance of units which are doing well. To facilitate growth and expansion. To improve the organizational efficiency. To influence management control

RESTRUCTURING STRATEGIES

What's Your Move??

FORMS OF RESTRUCTURING

1. Merger
2. Acquisition 3. Joint venture

4. Demerger
5. Slum sales 6. Carved out

Merger & Acquisition

M&A
1+1 = 3 this equation is the special alchemy of a merger or an acquisition . The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies Two companies together are more valuable than two separate companies

Merger

Combination of two or more companies in such a

way that only one survives and other is dissolved.

Tata Fertilizers Ltd (TFL) by Tata Chemicals Ltd

Transfer assets and liabilities

TFL TCL

Example
Brooke Bond and Lipton merged because their businesses

overlapped and hence they could benefit from operational economics and synergies.

Types of Mergers
HORIZONTAL-is a combination of two or more firms in the same area of

business. For example, combining of two book publishers or two luggage manufacturing companies to gain dominant market share.

VERTICAL- a combination of two or more firms involved in

different stages of production or distribution of the same product. joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

Vertical merger may take the form of forward or backward

merger. When a company combines with the supplier of material, it is called backward merger and when it combines with the customer, it is known as forward merger.

 CONGLOMERATE-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.

Reasons for Mergers

Why Buyer wishes to merge To increase value of the organization's stock To increase growth rate and make a good investment To improve stability of earning and sales To balance , complete or diversify product line To reduce competition To avail tax concessions /tax benefits. To take advantage of synergy

Acquisition
Acquisition is the process through which one

company takes over the controlling interest of another company.

From a legal point of view, the target company

ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

Ex:ThumsUp, Cocacola

Examples
Tata acquired Tetley

Mahindra acquired kinetic

Reliance acquired IPCL Jyoti lab acquired Henkel

Mahindra telecom takeover of Satyam

Why M&A EVOLVED

Merger Wave

1.
2. 3. 4. 5.

Merger wave I ( horizontal merger) Merger wave II (1916-1929) (vertical merger) Merger wave III (1965-1969) (conglomerate merger) Merger wave IV(1981-1989) (hostile merger) Merger wave V (1992. Till date) (strategic merger)

Joint venture
It is an arrangement in which two or more

companies (called joint venture partners) contribute to the equity capital of a new company (called joint venture) in pre decided proportion. They exercise control over the enterprise and consequently share revenues, expenses and assets. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits

 JV in India has to comply with FDI rules

Examples
Virgin mobile

Wal-Mart and Bharti enterprise

Maruti Zusuki

Demerger
The act of splitting of a part of an existing co to be a

new co to help each segment operate smoothly.

It can be done in two ways

Spin-off 2. Spilt-up
1.

It has to be approved by the shareholder and high court

Examples
Dabur India in 2003 Demerged FMCG & Pharma

division Demerger of L&T cement division of Cemco Bajaj Ltd demerged into Bajaj auto to focus on auto business.

Equity Carved Out

Sometimes known as a partial spinoff, a carve out occurs when a parent company sells a minority (usually 20% or less) stake in a subsidiary for an IPO or rights offering. The transaction creates two separate legal entities parent company and daughter companywith their own boards, management teams, financials, and CEOs

Distinction between Mergers and Acquisitions

Merger-when two firms, often of about the same

size, agree to go forward as a single new company. They are know as Mergers of equals
Acquisition -When one company takes over

another and clearly established itself as the new owner, the purchase is called an acquisition.

conti
A purchase deal will also be called a merger when

both CEO s agree that joining together is in the best interest of both of their companies. But when the deal is unfriendly - that is, when the target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an

acquisition really depends on whether the purchase is friendly or hostile and how it is announced

 Tata Steel-Corus: $12.2 billion.

Vodafone-Hutchison Essar: $11.1 billion on

Feb 11 2007. Hindalco-Novelis: $6 billion. Ranbaxy-Daiichi Sankyo: $4.5 billion. ONGC-Imperial Energy: $2.8 billion. HDFC Bank-Centurion Bank of Punjab: $2.4 billion Tata Motors-Jaguar Land Rover: $2.3 billion

 RIL-RPL merger: $1.68 billion.

Thank you