Corporate restructuring

Restructuring process, Types of restructuring, corporate restructuring techniques-mergers, takeovers, joint ventures, demerger, spin offs, split ups, leveraged buy-out, liquidation, reverese merger, equity carve out.

1. CORPORATE RESTRUCTURING By Sree Sanjana Gayathri Girish Aswin P.K 1 CET School of Management

2. INTRODUCTION It is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors such as, for positioning the company to be more competitive, for surviving a current adverse economic climate or to move the corporation in an entirely new direction . 2 CET School of Management

3. CET School of Management 3 Why? Corporate restructuring can be driven by a need for change in the organizational structure or business model of a company, or it can be driven by the necessity to make financial adjustments to its assets and liabilities. Frequently, it involves both. Companies restructure for a variety of reasons: To reduce costs To concentrate on key products or accounts To incorporate new technology To make better use of talent To improve competitive advantage To decrease or consolidate debt

4. CET School of Management 4 Restructuring process Determining what areas need to be restructured Identifying weaknesses and creating detailed short- and long-term plans to correct these weaknesses through a restructure Calculating and securing funding Restructuring Evaluating results

5. TYPES OF RESTRUCTURING 5 CET School of Management

6. TYPES OF RESTRUCTURING PORTFOLIO AND ASSET RESTRUCTURING A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. Portfolio restructuring involves the sale of assets no longer needed or wanted and the purchase of different ones. The term implies that this occurs at a fundamental level; that is, rather than selling a few securities here and there, the investor or the money manager is changing the basic structure of the portfolio or fund. 6 CET School of Management

7. TYPES OF RESTRUCTURING CAPITAL RESTRUCTURING Also known as financial restructuring , it is a corporate operation that involves changing the mixture of debt and equity in a company’s capital structure. The two components are :- Debt restructuring Equity restructuring 7 CET School of Management

8. TYPES OF RESTRUCTURING ORGANIZATION AND MANAGEMENT RESTRUCTURING A business organization makes changes in personnel and departments and can change how workers and departments report to one another to meet market conditions.  Some companies shift organizational structure to expand and create new departments to serve growing markets. . 8 CET School of Management

9. CORPORATE RESTRUCTURING TECHNIQUES 9 CET School of Management

10. CET School of Management 10 CORPORATE RESTRUCTURING - EXPANSION TECHNIQUES MERGERS Refers to the process whereby at least two companies combine to form one single company. It is a financial tool that is used for enhancing long term profitability by expanding their operations. Two forms :- Amalgamation – combination of two or more companies into an existing company consolidation – combination of two or more companies into a new company

11. CET School of Management 11 CORPORATE RESTRUCTURING - EXPANSION TECHNIQUES MERGERS Example:- Vodafone , India’s No 2 telecom operator, and Idea, the No 3, yesterday laid the foundation of what is to become India’s largest telecom company that will surpass Bharti Airtel .  Last March, both telcos decided to merge themselves after their existence was threatened by the newcomer Reliance Jio .

12. CET School of Management 12 TYPES OF MERGERS

13. CET School of Management 13 CORPORATE RESTRUCTURING - EXPANSION TECHNIQUES TAKEOVERS When an acquisition is a forced or unwilling acquisition , it is called a takeover. JOINT VENTURES This involves two companies coming together and forming a new company whose ownership is changed. Generally adopted by MNCs to enter into foreign markets.

14. CET School of Management 14 JOINT VENTURES Example:- Mahindra & Mahindra (M&M) Ltd. has initialled an agreement with Ideal Motors of Sri Lanka to set up a joint venture in the island nation. The Mumbai-based M&M will pick up 35% equity in the proposed joint venture with Ideal Motors. The remaining will be held by the Sri Lankan partner. CORPORATE RESTRUCTURING - EXPANSION TECHNIQUES

15. CET School of Management 15 Divestment, also known as divestiture, is the opposite of an investment, and it is the process of selling an asset for either financial, social or political goals. CORPORATE RESTRUCTURING - DIVESTMENT Example :- The government has invited ‘Expression of Interest’ to divest 76 per cent stake in the national passenger carrier Air India (AI ). The primary reason for Air India’s disinvestment was the government’s inability to cope with its debt of ₹52,000 crore .

16. CET School of Management 16 DEMERGER Demerger means split or division of a company. SPIN – OFF T his type of demerger involves division of company into wholly owned subsidiary of parent company Example :- Kotak Mahindra Finance Limited formed a subsidiary called Kotak Mahindra Capital Corporation by spinning off its investment banking division. CORPORATE RESTRUCTURING - DIVESTMENT TECHNIQUES

17. CET School of Management 17 3. SPLIT UPS This involves the division of the parent company into 2 or more separate company where the parent company ceases to exist after the demerger. New business entities take place of the parent firm. 4. LEVERAGED BUY OUT When a group of people buy the controlling stake in a company through leveraged (borrowed) funds, it is Leveraged Buyout. Expectation is that the return generated on the acquisition will more than outweigh the interest paid on the debt. CORPORATE RESTRUCTURING - DIVESTMENT TECHNIQUES

18. CET School of Management 18 Some successful LBO by Indian companies: The first being done by Tata Tea in 2000 for UK based Tetley. Tata steel for Corus Tata Motors for American Axle CORPORATE RESTRUCTURING - DIVESTMENT TECHNIQUES

19. CET School of Management 19 LIQUIDATION Under liquidation, a company is broken apart and the assets or the divisions are sold piece by piece. Generally, liquidations are linked to bankruptcies. It is of 3 types: Creditors voluntary liquidation Members voluntary liquidation Compulsory liquidation CORPORATE RESTRUCTURING - DIVESTMENT TECHNIQUES

20. CET School of Management 20 Examples of Liquidation in India: HSBC Global Shared Services (India) Pvt Ltd IL&FS Capital Advisors Khel Gaon Estates Pvt Ltd  Alfa Export Technologies CORPORATE RESTRUCTURING - DIVESTMENT TECHNIQUES

21. CET School of Management 21 REVERSE MERGER This is when a sick company extends its embracing arm to a profitable company and in turn absorbs it in its fold, this action is called reverse merger. It is the merger of a healthy company into a loss making company as compared to a normal merger. The first case of a reverse merger formulated by BIFR envisaged the merger of sick textile company SLM Maneklal industries limited with Sagar Real Estate Developer Ltd. CORPORATE RESTRUCTURING – other techniques

22. CET School of Management 22 EQUITY CARVE OUT The firms sell a part (20% or less) of its wholly owned subsidiary’s common stock in the market. This is similar to spin off’s except that some part of the shares is offered to public through public issue and the parent company continues to enjoy control over the subsidiary company by holding a controlling interest in it. CORPORATE RESTRUCTURING – other techniques

23. Thank you CET School of Management 23