bs ii- corporate restructuring

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Corporate Restruc


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Introduction

Corporate restructuring is the process of redesigning one oof a company for achieving certain objectives.

The process of reorganizing a company may be implemenumber of different factors, such as positioning the compacompetitive, survive a currently adverse econoor poise the corporation to move in an entirely new direction

Corporate restructuring is one of the most complex andphenomena that management confronts.

Business Strategy II

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Restructuring Involves

Renegotiation of labor contracts to reduce overhead.

Refinancing of corporate debt to reduce interest payments.

A major public relations campaign to reposition the companconsumers.

Forfeiture of all or part of the ownership share by pre-restructuholders (if the remainder represents only a fraction of the origtermed a stub).

Sale of underutilized assets, such as patents or brands

Outsourcing of operations such as payroll and technical suppefficient third party.

Moving of operations such as manufacturing to lower - cost lo

Reorganization of functions such as sales, marketing and dist


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Economic Rationale of Restructu

Expansion: Mergers, Acquisitions, Takeovers, Tender offer, Joint

Contraction: Sell offs, Spin offs, Split offs, Split ups, Divestiture

Corporate Control: Takeover Defenses, Share Repurchases, Exc

Contests

Changes in Ownership Structures: Leveraged Buyout, Goi

MLPs (Master Limited Partnerships)


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Why Restructuring (Purpose)


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To enhance the share holder value, The company should evaluate its:

1. Portfolio of businesses,

2. Capital mix,

3. Ownership &

4. Asset arrangements to find opportunities to increase the share ho

To focus on asset utilization and profitable investment opp

To reorganize or divest less profitable or loss making

businesses/products.

The company can also enhance value through capital Recan innovate securities that help to reduce cost of capita


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Why Restructuring (Objectives)

Economies of scale

Economies of scope: Scope of activity Economies of Production: Stages of production or value chai

Strategic benefit: competition, entry, risk and cost reduction

Complementary resources: e.g. Technology and Marketing

Tax benefits: accumulated losses, unabsorbed depreciation, incentives, sales and excise duty benefits

Utilization of surplus funds

Managerial effectiveness

Diversification

Lower financing costs

Earnings growth etc.


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Types of Restructuring:-FinancialRestructuring

Involves change in the capital structure and capital mix of thminimize its cost of capital

Also involves infusion of financial resources to facilitate mergeacquisitions, joint venture, strategic alliances, LBOs, and stock

Depends on availability of free cash flows, takeover threats facompany and concentration of equity ownership.


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Purpose of Financial Restructurin

Generate cash for exploiting available investment opportuni

Ensure effective use of available financial resources

Change the existing financial structure, in order to reduce the

capital

Leveraging the firm

Preventing attempts of hostile takeover.


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Portfolio Restructuring

Involves divesting or acquiring a line of business perceived pelong term business strategy of the company

Represents the companys attempt to respond to the marketwithout losing sight of its core competencies.

Purpose:

Restructuring as a result of some strategic alliance.

Responding to shareholders desire to downsize and refocus the

operations.

Responding to outside boards suggestion to restructure.

Responding to strategies adopted as a response to exercising ca


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Organizational Restructuring

Restructuring strategy designed to increase the efficiency aneffectiveness of personnel, through significant changes in theorganizational structure

Is a response changes in the business and related environme

Takes the form of divestiture and acquisitions.


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Forms of Corporate Restructuring

Expansion1. Mergers and Acquisitions

2. Tender Offers

3. Asset Acquisition

4. Joint Ventures

Contraction

1. Spin offs

2. Split offs

3. Divestitures

4. Equity carve-outs

5. Assets sale

Corporate Control1. Takeover defense

2. Share repurchase

3. Exchange offers

4. Proxy contests

Changes in Owners

1. Leveraged buyo

2. Junk Bonds

3. Going Private

4. ESOPs and MLPs


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Debt Restructuring

A method used by companies with outstanding debt obligations to alter th

debt agreements in order to achieve some advantage.

Debt restructuring may involve debt forgiveness, debt rescheduling, and/

a portion of debt into equity.

Debt restructuring is a process that allows a private and public company o

entity facing cash flow problems and financial distress, to reduce debts.

Debt restructuring is usually less expensive and a preferable alternative to

Debt-for-Equity Swaps: Company's creditors generally agree to cancel

the debt in exchange for equity in the company.

Debt-for-equity swap may also be called a bondholder haircut.


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Tender Offer

Tender offer is a public, open offer or invitation, usually announced in aprospective acquirer (bidder) to all stockholders of a publicly traded compcompany) to offer their stocks for sale at a specified price during a specifito the tendering of a minimum and maximum number of shares.

To attract the shareholders of the target company to sell, the acquirer's oincludes a premium over the current market price of the target company's

Cash or other securities may be offered to the target company's sharehold

A tender offer may be made by a firm to its own shareholders to reduceoutstanding shares, or it may be made by an outsider wishing to obtain

firm.

A tender offer may be made by the company's management in a bid to takeover. Alternatively, it may be a made by an outside company as part otakeover.

The shareholders who accept the tender offer make a significant profit onand the acquirer gains control of the company


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Sell Offs

Sell offs are the form ofcontraction or downsizing activities undertake

companies as a part of corporate restructuring. These activities allow the

shareholders valueby redeploying assets through contraction and dow

parent company.

Sell offs is a generic term and under it, various forms exist such as spin

split ups, divestitures, equity carve outs etc.

There are various considerations to sell offs such as economic, operatio

labor, capital redeployment, synergy etc.


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Spin Offs

Spinoffs are a way to get rid of underperforming or non-core divisions that can drag down profits.

Spin offs are a distribution of subsidiary shares to parent compshareholders

As such, no money (necessarily) comes into the parent company

No shares (or assets) of the subsidiary are sold to the market (IPO

(divestiture) Distribution in most instances is tax free


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Divestiture

Selling assets, divisions, subsidiaries to another corporation or of corporations or individuals.

It is a form of contraction for the selling company.

Among the various methods of divestiture, the most importanpartial sell-off, demerger (spin-off & split off) and equity carve

Selling corporation typically receives consideration for the as

1. cash2. securities

3. other assets

Divestitures are typically taxable events for selling corporationfor purchaser)


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Restructuring Outcomes

Strategy:- Focus on related or unrelated units (less total diversification)

Innovation

Employee Effects

Trust of management

Poor communication

Motivation

Turnover

Performance (Market)

Generally positive (except when fighting a takeover)

Determined by use of funds


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bs ii- corporate restructuring

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