corporate restructuring PPT for strategic management

Corporate restructuring

1. Duration: 130 min Grades: 6 - 8 CCSS, NGSS CORPORATE RESTRUCTURING DR. MANOJ MISHRA, CNLU PATNA

2. Forms of Corporate Restructuring DEFINITION: A strategy by which company changes its business or financial structure. Radical changes in business structure. Used in response to changes in external and internal environment. Diversification was a common phenomenon leading to unmanageable extent. Letter to companies undertaking restructuring activities

3. Forms of Corporate Restructuring Expansion Sell offs Corporate control Changes in ownership Mergers And acquisition Tender offers Joint ventures Spin offs Split offs Divestures Equity carve outs Premium buybacks Standstill agreements Antitakeover amendments Proxy contests Exchange Offers Share repurchases Going private Leveraged buyouts

4. Forms of Corporate Restructuring Expansion Mergers And acquisition Merger – any transaction through which two or more firms integrate their operations on a relatively equal basis. One economic unit form two or more previous ones Horizontal Mergers: Vertical Mergers: Conglomerate Mergers Types of Conglomerate Mergers: Product extension Mergers : Geographic market-extension merger

5. Forms of Corporate Restructuring Expansion Tender offers Shareholders to submit or tender their shares Approval of BOD ‘Bear Hug’ without approval writes its intension to takeover (acquisition proposal) – Hostile takeover – target company takes help from ‘White Knight’ rescue of target company Joint ventures Firms continue to exist with New firm formed Partners share proportional capital, distinctive skills, personnel , reporting systems and technologies to gain competitive advantage

6. Forms of Corporate Restructuring Characteristics of Joint Venture: Partners contribute money, property, effort, knowledge, skill or other assets to a common undertaking Partners have the right to control and manage the venture Partners come together in expectation of some profits and they have to right to share the profits Sell offs : Spin offs Separate legal entity Shares divided on pro rata basis New Entity can make independent decisions Divestitures

7. Forms of Corporate Restructuring Sell offs : Spin offs 2 types Spin-off’s Split-off’s Spit off’s some of the existing shareholders receive stock in subsidiary in exchange for stock in parent company Entire firm is split into fragments parent firm no longer existing New company survives in the long run Divestitures Sale of a portion of the firm to a third party No new legal entity is created as buyer is an existing firm Equity Carve out A variation of divestitures- Portion of firm is sold to outsiders through equity offerings Creates new legal entity

8. Forms of Corporate Restructuring Corporate control Premium buybacks Substantial shares are purchased at premium (above market price) called ‘green mail’ Standstill agreements A standstill agreement is signed where shareholders agree not to attempt takeover Alternatively can agree not to increase ownership control Antitakeover amendments Changes in corporate bye laws to prevent takeover attempts Super majority voting provision Unspecified service term for directors Golden Parachute (large payment to existing management on termination.

9. Forms of Corporate Restructuring Corporate control Proxy contests External group called ‘dissidents’ or ‘insurgents’ tries to obtain representation on company’s board of directors. Reduce the power of existing BOD Changes in ownership structure Exchange Offers Share repurchases Going private Leveraged buyouts

10. Forms of Corporate Restructuring Changes in ownership structure Exchange Offers Exchanging Debt or preferred stock for common stock Share repurchases Buyback some portion of its outstanding shares of common stock Changes the control structure of the firm if substantial Going private Small group buying entire equity interest If management initiates it is called ‘management buyout’ Leveraged buyouts When private company borrows substantially from third parties.

11. Theory of the Firm and Corporate Activity Why do firms exist? Why they engage in different activities? Leads to reasons for control, merger and acquisitions etc. We study the answer in following: Rationale for the existence of the firm Organizational forms Organizational Structure

12. Rationale for the Existence of the Firm Transaction Cost efficiency Transactional friction Avoided by detailed contract to foresee all circumstances Difficulty in implementation due to Bounded rationality Computational capacity + language limitation, OPPORTUNISTIC BEHAVIOUR Opportunism – shirking, cheating and sub optimal behaviour-unrealistic behaviour Production Cost efficiency Team Production – synergies team members can shirk responsibility Organizational capital – 3 types assign task to employees, match employees, information about other employees – bounded to firm Informational advantage Nexus of contract Long term contracts that restrain the behaviour of transactors Relation of people and physical assets – franchisee, mutual, partnerships, joint ventures. etc

13. Rationale for the Existence of the Firm Transaction Cost efficiency Transfer of goods/service across technologically separable interface is transaction Transaction are of two types Smooth Problems in quality of goods or service To make it smooth they may make arrangements. Cost is a consideration to make it smooth or not. Production Cost efficiency Nexus of contract

14. Organizational Forms: Vertical Structure Forward integration Distributional channels Cooperatives Army supplies Government contracts, tenders Backward integration Suppliers Components manufacturer Agriculture produce Raw material production

15. Organizational Forms: Horizontal Structure M-form organization U-form organizational Communication overload (bounded rationality) Sub goals within (opportunism) To avoid MULTIDIVISIONAL FORM – beyond line and staff Effective allocation of resources, strategic planning and monitoring and control improves Production cost efficiency M-form draws large investments Tata, Birla, …

16. Numerator and Denominator Management Contingency plan to face downturn Reduce head count and investment and sell assets (Denominator driven belt tightening) Improve productivity, profitability (numerator focussed management) Numerator more healthy, Denominator more easy Gary Hamel and C.K.Prahlad CEO should be numerator driven Reengineering, Customer satisfaction, reduced cycle time

17. Turnaround Management: Stage1: Decline Stage2: Response Initiation Stage3: Transition Stage4: Outcome success failure Indeterminate PERFORMANCE NADIR

18. Turnaround Management: BIFR SAMSUD CHOUDHARY – 3 COMPANIES – CHRYSLER, IBM, NISSAN PRESERVES THROUGH AN EXIGENCY THREATENING PERFORMANCE DECLINE STRATEGY, SKILLS, & CAPABILITIES – SUSTAINABLE PERFORMANCE RECOVERY DECLINING PERFORMANCE TRIGGERS TURNAROUND SERIES OF ACTIVITIES UNDERTAKEN WITH DEFINITE PURPOSE TURNAROUND ACTIVITIES CONTINUES FOR SEVERAL YEARS