CORPORATE RESTRUCTURING

Corporate restructuring is an action taken by the corporate entity to modify its capital structure or its operations significantly. Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial jeopardy.

1. CORPORATE
RESTRUCTURING

2. CORPORATE RESTRUCTURING
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DEFINITION
Corporaterestructuringisanactiontakenbythecorporateentitytomodifyits
capitalstructureoritsoperationssignificantly.Generally,corporaterestructuring
happenswhenacorporateentityisexperiencingsignificantproblemsandisin
financialjeopardy.

3. INTRODUCTION
CORPORATE RESTRUCTURING
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4. INTRODUCTION
Theprocessofcorporaterestructuringisconsideredveryimportanttoeliminateall
thefinancialcrisisandenhancethecompany’sperformance.Themanagementofthe
concernedcorporateentityfacingthefinancialcruncheshiresafinancialandlegal
expertforadvisoryandassistanceinthenegotiationandthetransactiondeals.
Usually,theconcernedentitymaylookatdebtfinancing,operationsreduction,any
portionofthecompanytointerestedinvestors.Inadditiontothis,theneedfor
corporaterestructuringarisesduetothechangeintheownershipstructureofa
company.Suchchangeintheownershipstructureofthecompanymightbeduetothe
takeover,merger,adverseeconomicconditions,adversechangesinbusinesssuchas
buyouts,bankruptcy,lackofintegrationbetweenthedivisions,over-employed
personnel,etc.
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5. TYPES OF CORPORATE
RESTRUCTURING
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6. FinancialRestructuring
TYPES OF CORPORATE RESTRUCTURING
Organizational Restructuring
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Thistypeofrestructuringmaytakeplacedue
toaseverefallintheoverallsalesbecauseof
adverseeconomicconditions.Here,the
corporateentitymayalteritsequitypattern,
debt-servicingschedule,equityholdings,and
cross-holdingpattern.Allthisisdoneto
sustainthemarketandtheprofitabilityofthe
company.
OrganizationalRestructuringimpliesa
changeintheorganizationalstructureofa
company,suchasreducingitslevelofthe
hierarchy,redesigningthejobpositions,
downsizingtheemployees,andchanging
thereportingrelationships.Thistypeof
restructuringisdonetocutdownthecost
andtopayofftheoutstandingdebtto
continuewiththebusinessoperationsin
somemanner.

7. REASONS
CORPORATE RESTRUCTURING
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8. REASONS FOR CORPORATE RESTRUCTURING
Themanagementofthedistressedentityattemptstoimproveitsperformancebyeliminatingcertaindivisionsand
subsidiarieswhichdonotalignwiththecorestrategyofthecompany.Thedivisionorsubsidiariesmaynotappear
tofitstrategicallywiththecompany’slong-termvision.Thus,thecorporateentitydecidestofocusonitscore
strategyanddisposeofsuchassetstothepotentialbuyers.
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Change in the Strategy
Lack of Profits
Theundertakingmaynotbeenoughprofit-makingtocoverthecostofcapitalofthecompanyandmaycause
economiclosses.Thepoorperformanceoftheundertakingmaybetheresultofawrongdecisiontakenbythe
managementtostartthedivisionorthedeclineintheprofitabilityoftheundertakingduetothechangeincustomer
needsorincreasingcosts.

9. REASONS FOR CORPORATE RESTRUCTURING
Thisconceptisincontrasttotheprinciplesofsynergy,wherethevalueofamergedunitismorethanthevalueof
individualunitscollectively.Accordingtoreversesynergy,thevalueofanindividualunitmaybemorethanthe
mergedunit.Thisisoneofthecommonreasonsfordivestingtheassetsofthecompany.Theconcernedentity
maydecidethatbydivestingadivisiontoathirdpartycanfetchmorevalueratherthanowningit.
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Reverse Synergy
CashFlow Requirement
Disposingofanunproductiveundertakingcanprovideaconsiderablecashinflowtothecompany.Iftheconcerned
corporateentityisfacingsomecomplexityinobtainingfinance,disposingofanassetisanapproachinorderto
raisemoneyandtoreducedebt

10. CHARACTERISTICS
CORPORATE RESTRUCTURING
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11. CHARACTERISTICS OF
CORPORATE RESTRUCTURING
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•To improve the Balance Sheet of the company (by disposing of the unprofitable division from its core business)
•Staff reduction (by closing down or selling off the unprofitable portion)
•Changes in corporate management
•Disposing of the underutilized assets, such as brands/patent rights.
•Outsourcing its operations such as technical support and payroll management to a more efficient 3rd party.
•Shifting of operations such as moving of manufacturing operations to lower-cost locations.
•Reorganizing functions such as marketing, sales, and distribution.
•Renegotiating labor contracts to reduce overhead.
•Rescheduling or refinancing of debt to minimize the interest payments.
•Conducting a public relations campaign at large to reposition the company with its consumers.

12. ASPECTS TO BE CONSIDERED
CORPORATE RESTRUCTURING
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13. ASPECTS TO BE CONSIDERED
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•Legal and procedural issues
•Accounting aspects
•Human and Cultural synergies
•Valuation and funding
•Taxation and Stamp duty aspects
•Competition aspects

14. TYPES
CORPORATE RESTRUCTURING
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15. TYPES OF CORPORATE RESTRUCTURING
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Corporate
Restructuring
Strategies
Merger
Demerger
Reverse Merger
Disinvestment
Takeover/Acquisition
Corporate
Restructuring
Strategies
Joint Venture (JV)
Strategic Alliance
Slump Sale

16. TYPES OF CORPORATE RESTRUCTURING
Conceptwheretwoormorebusinessentitiesaremergedtogethereitherbywayofabsorptionoramalgamationor
byforminganewcompany.Themergeroftwoormorebusinessentitiesisgenerallydonebytheexchangeof
securitiesbetweentheacquiringandthetargetcompany.
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Merger
Demerger
Underthiscorporaterestructuringstrategy,twoormorecompaniesarecombinedintoasinglecompanytogetthe
benefitofsynergyarisingoutofsuchamerger.
Inthisstrategy,theunlistedpubliccompanieshavetheopportunitytoconvertintoalistedpubliccompany,without
optingforIPO(InitialPublicoffer).Inthisstrategy,theprivatecompanyacquiresamajorityshareholdinginthe
publiccompanywithitsownname.
Reverse Merger

17. TYPES OF CORPORATE RESTRUCTURING
Whenacorporateentitysellsoutorliquidatesanassetorsubsidiary,itisknownas“divestiture”
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Disinvestment
Takeover/Acquisition:
Underthisstrategy,theacquiringcompanytakesoverallcontrolofthetargetcompany.Itisalsoknownasthe
Acquisition.
Underthisstrategy,anentityisformedbytwoormorecompaniestoundertakefinancialacttogether.Theentity
creatediscalledtheJointVenture.Boththepartiesagreetocontributeinproportionasagreedtoformanewentity
andalsosharetheexpenses,revenuesandcontrolofthecompany.
Joint Venture (JV)

18. TYPES OF CORPORATE RESTRUCTURING
Underthisstrategy,twoormoreentitiesenterintoanagreementtocollaboratewitheachother,in
ordertoachievecertainobjectiveswhilestillactingasindependentorganizations
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Strategic Alliance
Underthisstrategy,anentitytransfersoneormoreundertakingsforlumpsumconsideration.Under
SlumpSale,anundertakingissoldforconsiderationirrespectiveoftheindividualvaluesoftheassets
orliabilitiesoftheundertaking
Slump Sale

19. BENEFITS OF CORPORATE RESTRUCTURING
▰IncreaseinMarketShare–Mergerfacilitatesincreaseinmarketshareofthemergedcompany.Suchrisein
marketshareisachievedbyprovidinganadditionalgoodsandservicesasneededbyclients.Horizontalmerger
isthekeytoincreasingmarketshare.(E.g.IdeaandVodafone)
▰ReducedCompetition–Horizontalmergerresultsinreductionincompetition.Competitionisoneofthemost
commonandstrongreasonsformergersandacquisitions.(HPandCompaq)
▰Largesize–Companiesusemergersandacquisitionstogrowinsizeandbecomeadominantforce,as
comparedtoitscompetitors.Generally,organicgrowthstrategytakesyearstoachievelargesize.However,
mergersandacquisitions(i.e.inorganicgrowth)canachievethiswithinfewmonths.(E.g.SunPharmaceutical
andRanbaxyPharmaceutical)
▰Economiesofscale–Mergersresultinenhancedeconomiesofscale,duetowhichthereisreductionincost
perunit.Anincreaseintotaloutputofaproductreducesthefixedcostperunit.
▰Taxbenefits–Companiesalsousemergersandamalgamationsfortaxpurposes.Especially,wherethereis
mergerbetweenprofitmakingandloss-makingcompany.Majorincometaxbenefitarisesfromset-offandcarry
forwardprovisionu/s72AoftheIncome-taxAct,1961.
▰NewTechnology–Companiesneedtofocusontechnologicaldevelopmentsandtheirbusinessapplications.
Acquisitionofsmallercompanieshelpsenterprisestocontroluniquetechnologiesanddevelopa
competitiveedge.(E.g.DellandEMC) 19

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21. CREDITS
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