Mergers and acquisitions - - introduction

MnA introduction chapter

1. Chapter 1 Corporate Restructuring

2. CHAPTER 1 Why Corporate Restructuring? Increased Competition Advent of a new and more efficient technology Emergence of new markets Emergence of new classes of consumers Demographic changes Business cycles ‘Wise organizations undertake changes to increase their cutting edge over the competitors and enhance their leadership position.’

3. Increased Competition Flipkart and Myntra (2014) : To better compete with Amazon in the Indian e-commerce market, Flipkart acquired Myntra, a leading online fashion retailer. Vodafone and Idea Cellular (2018) : In response to intense competition in the telecom sector, particularly after the entry of Reliance Jio, Vodafone India merged with Idea Cellular to form Vodafone Idea Limited. Advent of a New and More Efficient Technology Reliance Jio and Radisys (2018) : Reliance Jio acquired Radisys , a US-based telecommunications solutions provider, to enhance its technology capabilities and support the development of new 5G and IoT technologies. HCL Technologies and IBM Products (2018) : HCL Technologies acquired select IBM software products to leverage new and more efficient technologies in their software services offerings. Emergence of New Markets OYO Rooms and Leisure Group (2019) : OYO acquired the Amsterdam-based @Leisure Group, marking its entry into the European vacation rental market and expanding its global footprint. Tata Motors and Jaguar Land Rover (2008) : Tata Motors acquired the British luxury car brands Jaguar and Land Rover to enter the high-end automobile market and expand its presence in global markets.

4. Emergence of New Classes of Consumers Zomato and Uber Eats India (2020) : Zomato acquired Uber Eats India to cater to a broader class of consumers seeking food delivery services and to strengthen its market position. Byju's and WhiteHat Jr (2020) : Byju's acquired WhiteHat Jr to tap into the growing demand for online coding classes among young learners and to diversify its educational offerings. Demographic Changes HDFC Bank and Centurion Bank of Punjab (2008) : HDFC Bank merged with Centurion Bank of Punjab to expand its reach in regions with a growing population and increasing banking needs. Future Group and Bharti Retail (2015) : The merger between Future Group and Bharti Retail aimed to capitalize on India's growing middle-class population and rising demand for organized retail. Business Cycles SBI and its Associate Banks (2017) : State Bank of India merged with its five associate banks to create a more resilient and competitive banking entity, capable of better navigating business cycles. ICICI Bank and Bank of Rajasthan (2010) : ICICI Bank acquired Bank of Rajasthan to strengthen its position and improve stability during economic fluctuations.

5. Why Corporate Restructuring? However, not all the changes that a company undergoes would qualify to be termed as ‘ corporate restructuring ’.

6. Corporate Restructuring Definition Corporate restructuring can be defined as any change in the business capacity or portfolio that is carried out by an inorganic route or Any change in the capital structure of a company that is not a part of its ordinary course of business or Any change in the ownership of or control over the management of the company or a combination of any two or all of the above

7. Corporate Restructuring (a) Any change in the business capacity or portfolio carried out by inorganic route Tata Motors launched Sumo and later, Indica- leading to an expansion of its business portfolio. However, these products were launched from Tata Motor’s own manufacturing capacity in through an organic route. Hence, it would not qualify as ‘corporate restructuring’ Tata Motors’ acquisition of Jaguar Land Rover from Ford, through Jaguar Land Rover Limited is ‘corporate restructuring’ Grasim’s acquisition of Larsen & Toubro’s (L&T) cement division through UltraTech Cement Limited is an example of ‘corporate restructuring’ (b) Change in the business portfolio could also be in the nature of reduction of business handled by a company In the case of Grasim and L&T, the demerger of L&T’s cement business into UltraTech Cement Limited was reduction of its business portfolio and thus, amounted to ‘corporate restructuring’ of L&T.

8. Corporate Restructuring Any change in the capital structure of a company that is not in the ordinary course of its business Capital structure refers to debt equity ratio, i.e. the proportion of debt and equity in the total capital of a company. This capital structure is never static and changes almost daily. Within a targeted or planned range if the debt/equity ratio fluctuates, such changes in the capital structure do not amount to ‘capital restructuring’. Borrowing of a significant amount of term loan or an issue of five year non-convertible debenture do not qualify to be called ‘corporate restructuring’ . An initial public issue, or a follow-on public issue or buy-back of equity shares would permanently alter the capital structure of a company, and thus, would amount to ‘corporate restructuring’.

9. Corporate Restructuring III. Any change in the ownership of a company or control over its management Merger of two or more companies belonging to different promoters Demerger of a company into two or more with control of the resulting company passing on to other promoters Acquisition of a company Sell-off of a company or its substantial assets Delisting of a company All these would qualify to be called exercises in ‘corporate restructuring’.

10. The Activities or Changes which are not termed ‘Corporate Restructuring’ I. Initial creation of a corporate structure Its various examples are: Incorporation of a limited company Conversion of a proprietary concern into a company Conversion of a partnership firm into a company Conversion of a private company into a public company II. Change in the internal command structure or hierarchy The command structure of an organization or its hierarchy simply means the reporting relationships among the employees, managers, top management and their various functions. Functional organization Divisional organization Matrix organization Continued…

11. The Activities or Changes Which are Not Termed ‘Corporate Restructuring’ With businesses having become more complex along with the acceptance of newer concepts of organization building such as tutorship, mentorship, etc., the hierarchies have stopped strictly falling into one of the three types mentioned in the earlier slide. Any migration of an organization from functional to divisional or to matrix type or to any new or hybrid type or vice-versa would not be a case of ‘ corporate restructuring’. III. Change in the business process This is also called ‘reengineering’. ‘ Reengineering, properly, is the fundamental rethinking and redesign of business processes to achieve dramatic improvement in critical, contemporary measures of performance, such as cost, quality, service and speed .’ It refers to the radical redesigning of business processes and not to the ownership and control or to the capital structure of the organization. Reengineering is also outside the ambit of ‘corporate restructuring’.

12. The Activities or Changes which are not termed ‘Corporate Restructuring’ IV. Downsizing It is another form of organizational change in which the business organization substantially cuts down on its manpower, recurring cost and/or capital expenditure, either as an objective itself or as a result of reengineering. Downsizing is also outside the purview of ‘corporate restructuring’. V. Other activities Activities such as outsourcing, enterprise resource planning, total quality management, franchising alliances, networking alliances and licensing do not classify as corporate restructuring activities.

13. Major Forms of Corporate Restructuring Merger Consolidation Acquisition Divestiture Demerger (spin off/split up/split off) Carve Out Joint Venture Reduction of Capital Buy-back of Securities Delisting of Securities/Company Corporate Debt Restructuring