B Y P R O F. D I P T I P E R I WA L M B A ( F I N A N C E )

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CORPORATE RESTRUCTURING

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 liabilitiesTFL 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.

Why Buyer wishes to mergeTo increase value of the organization's stockTo increase growth rate and make a good

investmentTo improve stability of earning and salesTo balance , complete or diversify product

lineTo reduce competitionTo avail tax concessions /tax benefits.To take advantage of synergy

Reasons for Mergers

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 kineticReliance acquired IPCLJyoti lab acquired HenkelMahindra telecom takeover of Satyam

Why M&A EVOLVED

Merger Wave1. Merger wave I ( horizontal merger)2. Merger wave II (1916-1929) (vertical

merger)3. Merger wave III (1965-1969) (conglomerate

merger)4. Merger wave IV(1981-1989) (hostile

merger)5. 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 mobileWal-Mart and Bharti enterpriseMaruti 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 ways1. Spin-off2. Spilt-up

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 CemcoBajaj 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 company—with 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 billionTata Motors-Jaguar Land Rover: $2.3

billion

RIL-RPL merger: $1.68 billion.

Thank you