Business Strategy Implementation

Question No. 2

Corporate restructuring is an exercise to devolve existing shareholder and replacing new shareholder and camouflage the lenders in the process. Justify why company uses it?

Corporate Restructuring

Corporate restructuring can lead to change along one or more of the three direction

i) Assets and Portfolio

ii) Capital Structure

iii) Organisation and Management

Scope of Corporate Restructuring?

1) Portfolio and Assets Restructuring

a) Mergers & Acquisitions

› Merger of two or more legal entities or companies

› Purchase of assets/business of another firm as a going concern

› Substantial acquisition of share of a legal entity leading to change of control in the same

b) Divestitures

› Divestment of assets/business as going concern

Scope of Corporate Restructuring?

› Divestment of controlling stake of a legal entity leading to change of control

› Spin-off of a division or a subsidiary into a separate legal entity

› Split-off

› Split-up

› Equity carveout

Scope of Corporate Restructuring?

2) Financial Engineering - Leading to changes in existing capital structure

› Alteration in debt-equity mix/debt-equity swaps

› Issue of different classes of shares

› Issue of different types of debts to meet fixed and working capital needs

› Infusion of foreign debts and equity

› Buyback of shares

Scope of Corporate Restructuring?

3) Internal Streamlining and Business Process Re-engineering

› Downsizing of head count

› Cost reduction programmes

› Closure of uneconomic units

› Disposal of idle assets

› Business process re-engineering

Why devolve old shareholder and look for new shareholder

Acquisitions is capital intensive hence require lenders.

Diversification sometime destroy its value which i turn devolve the old shareholder and to regain from the low value it need new shareholders to buy equity to get fund.

Acquisition benefit the acquired firms rather than acquiring firms. So as it destroy existing shareholders.

To raise debt, to increase assets based capital, firm go for new shareholders by doing corporate restructuring

Why devolve old shareholder and look for new shareholder

To overcome from debt ridden financial report organisation go for corporate restructuring to get new shareholders to get fresh funds

When organization failed to give adequate profit margin, its share falls and to enhance the value of share organization go for corporate restructuring by going for merging or acquisition, which leads to new lenders.