Beruflich Dokumente
Kultur Dokumente
SL. NUMBER
CONTENTS
PAGE NUMBERS
Declaration
II
Certificate by HOD
III
Certificate by Guide
IV
Acknowledgement
Table of Contents
VI
List of Tables
VII
List of Figures
VIII
Abstract
10
CHAPTER 1 - INTRODUCTION
11-23
Introduction
12
1.1
12
1.2
1.3
13
1.4
Definitions
19
13
24-37
2.1
Tata groups
25
2.2
Tata motors
28
2.3
30
2.4
Tata steel
34
38-44
3.1
39
3.2
43
3.3
45
46-49
4.1
Need of study
46
4.2
Objective of study
46
4.3
Research methodology
46
4.4
Scope of study
49
4.5
Limitations of study
49
5.1
5.2
55
5.3
59
5.4
64
5.5
68
6.1
6.2
Suggestions
50-71
51
72-76
73
75
CHAPTER 7 - CONCLUSION
77-78
BIBLIOGRAPHY
79-80
ANNEXURES
81-87
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List of tables
SL. NUMBER
CONTENTS
PAGE NUMBERS
51
55
59
59
63
64
68
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LIST OF CHARTS
SL. NUMBER
CONTENTS
PAGE NUMBERS
52
52
54
56
58
60
62
10
65
12
13
69
14
69
15
71
11
56
60
65
67
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Abstract
The extreme rivalry, quick technological change, major corporate accounting scandals, and
rising securities exchange unpredictability have expanded the load on administrators to
convey superior performance and value for their shareholders. In the present day "winner
takes all" economy, organizations that neglect to meet this test will confront the certain loss
of their independence, if not annihilation. Corporate restructuring has empowered a large
number of associations around the globe to react all the more rapidly and adequately to new
open doors and unexpected pressures, thereby reestablishing their competitive advantage. It
has had a similarly significant effect on the numerous huge numbers of suppliers, clients, and
contenders that work with restructured firms. Corporate restructuring and enhanced corporate
administration are vital parts of financial reform programs under route in numerous nations
This paper will empower you to see in what capacity organizations can be restructured to
advance development and expand shareholders wealth what framework is expected to
advance better corporate restructuring.
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Chapter-1
Introduction
Page | 11
1. Introduction
Equity being a main source of financing in the recent decade, every company focuses to
create value and wealth to the shareholder. Under the regular accounting practises many
companies are seem to be profitable but they are not. Peter Drucker argues that a company
makes profit only when the returns on the investment is more than the cost of capital given by
the company,
Harvard Business Review article. Shareholder value may be referred to as shareholders
primacy or shareholders wealth maximization (Keay, 2013). Shareholders value may also be
defined as focusing on increasing the market price, growing earnings and dividend which
delivers maximum wealth to the shareholders because of managements ability. Higher the
shareholders value the better it is for the management and the company. Hence every
company should keep in mind the interest of the shareholders wealth while making important
decisions. For this to happen, administration must involve in effective choice making in order
to increase benefits, Thereby increasing shareholders wealth. On the other hand, the bad
decision of the company may be at the cost of the shareholders wealth. Hence most of the
companies in recent decades have focused their strategies to increase the shareholders wealth.
The maximization of shareholders wealth is of priority for the companies.
Corporate restructuring, out of all emerging concepts of findings ways to serve shareholders
better, has been a very successful concept abroad and its been followed all the more in high
context cultures like India. With the Indian companies showing sustained growth over the last
few decades, large companies are showing interest in acquiring the global firms in order to
grow global and increase the wealth of the shareholders. On such Examples include Tata
acquiring Corus of British by the way of Leveraged Buyout. The Tatas also took over Jaguar
and Land Rover in Indias most significant global transactions.
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But the financially strong entrepreneurs made their presence felt. Ram Prasad Goenka, Vijay
Mallaya, M.R. Chabria, SrichandHinduja and DhirubhaiAmbani were former in undertaking
certain major corporate restructuring exercises.
The opening up of Indian economy started with the Industrial Policy, 1991 whereby
continuity with change was emphasized and main focus was on relaxations in licensing,
foreign investments, and transfer of technology etc. Amendments were made in MRTP Act,
within all restrictive sections which were discouraging growth of industries. With the opening
up of economy, globalization and liberalization the Indian corporate started restructuring to
meet the global competition.
1.3.1 Amalgamation
In amalgamation, two or all the more existing organizations merger together or structure
another organization keeping in view their long term business interest. The transferor
organizations lose their presence and their shareholders turn into the shareholders of the new
organization. Consequently, amalgamation is a legitimate process by which two or more
organizations are joined together to structure another substance or one or more organizations
are to be ingested or mixed with an alternate and as an outcome the amalgamating
organization loses its presence and its shareholders turned into the shareholders of the new or
amalgamated organization
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1.3.4 Divestitures
The halfway or full transfer of a specialty unit through deal, trade, conclusion or insolvency.
Divestiture may come about because of an administration choice to no more work a specialty
unit on the grounds that it is not piece of a Centre competency. It might likewise happen if a
specialty unit is esteemed excess after a merger or procurement, if discarding a unit builds the
resale estimation of the firm or if a court requires the offer of a specialty unit to enhance
market rivalry.
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1.3.10 Privatization
The exchange of possession, property or business from the legislature to the private part is
termed privatization. The legislature stops to be the manager of the element or business. The
procedure in which a traded on an open market organization is assumed control by a couple
of individuals is likewise called privatization.
1.3.12 Demerger
Demerger in connection to organizations, the demerged organization offers and exchanges
one or a greater amount of its endeavors to the coming about organization for a concurred
thought. The ensuing organization issues its parts at the concurred trade proportion to the
shareholders of the demerged organization. Demerger is a generally new Phenomenon in the
Indian corporate sector.
1.3.13 Franchising
Franchising points basically at appropriating merchandise and administrations that have a
high notoriety in the business and includes overhauling the clients and end clients.
Franchisers help, train and to a degree control franchisees in offering products and rendering
administrations. The most prevalent manifestation of franchising is the item conveyance
establishment it gets to be more confounded when the franchisee needs to market the item
that must be arranged, treated, amassed, handled or adjusted in a defined manner, the
franchiser being extremely rumored and connected with that style of adjusting.
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1.3.15 Disinvestment
The Disinvestment Policy of the Government of India in the territory of privatizing general
society division endeavors alludes to exchange of benefits or administration conveyance from
the legislature to the private division. For this reason, the Disinvestment Commission was
created on 23rd August 1996 as a free non-statutory, admonitory body to make its proposals
on people in general area ventures alluded to it. The idea of disinvestment takes diverse
structures from least government association to organization with private division where the
government is the greater part shareholder.
The notable peculiarities of the methodology developed by the Department of Disinvestment
incorporate (i) suggestions as per the recommended approach to be set before the Cabinet
Committee on Disinvestment (CCD); (ii) choice of exhort after leeway of proposal; (iii) issue
of notice in driving daily papers welcoming Expression of Interest (EOI); (iv) short-posting
of bidders on the premise of set down criteria; (v) drafting of Share Buy Agreement and
Shareholders' Agreement; (vi)finalization of Share Purchase Agreement and Shareholders'
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Acceptance after arrangements; (vii) Inter-Ministerial Group (IMG) gathering to support the
proposal and acceptance and (viii) assessment by the Comptroller and Auditor General
(CAG) of India after the exchange is finish.
1.4 Definitions
1.4.1 Economic Value Added (EVA)
Economic Value Added (EVA) is a worth based execution measure that gives significance on
quality creation by the administration for the managers. Benefit augmentation as an idea is
age-old, riches expansion is developed and esteem boost is today's knowledge. Stern
Stewart's EVA brings storm up in corporate world and gives another approach to contemplate
remunerating management. Usability of EVA generally relies on upon the nature of
bookkeeping data framework, as customary data framework won't give sufficient data to
process genuine EVA. In this way, EVA is obliged to be custom-made in accordance with
bookkeeping framework, administration rationality and the level of interest of such a
framework.
EVA = Net Operating Profit after Taxes (NOPAT) - (Capital * Cost of Capital)
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streamline the computation by utilizing the quantity of shares exceptional toward the end of
the period.
Weakened EPS develops essential EPS by including the shares of convertibles or warrants
exceptional in the remarkable shares number.
EPS = Net income Dividends on preferred stock
Average outstanding shares
particular proportion is attractive relies on upon the way of the business and the qualities of
its present resources and liabilities. The base satisfactory current proportion is clearly 1:1;
however that relationship is typically playing it imprudently close.
On the off chance that you choose your business' present proportion is excessively low, you
may have the capacity to raise it by:
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1.4.9 Synergies
The communication or collaboration of two or more associations, substances, or different
specialists to create a joined impact more noteworthy than the total of their different impacts.
Total liabilities
Net Worth
By and large, the higher this proportion, the more dangerous a creditor will see its
presentation in your business, making it correspondingly harder to get credit
instrument, and evade the day by day battles of little business administration. The ROI is
computed as:
Net Profit before Tax
Net Worth
These Liquidity, Leverage, Profitability, and Management Ratios permit the entrepreneur to
recognize slants in a business and to contrast its advance and the execution of others through
information distributed by different sources. The manager might consequently focus the
business relative qualities and shortcomings.
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Chapter-2
Company Profile
Page | 24
Company profile
2.1 Tata Groups
Tata Group is an Indian Multinational company a conglomerate organization headquartered in
Mumbai, Maharashtra, and India It incorporates seven business divisions: correspondences
and data engineering, building, materials, administrations, vitality, purchaser items and
chemicals. Tata Group was established in 1868 by Jamsetji Tata as an exchanging
organization. It has operations in more than 80 nations over six continents
Tata Group has in excess of 100 working organizations with each of them working
autonomously. Out of them 32 are publicly listed
History of organization
Establishment 1868 to 1931
Consolidation 1932 to 1989
Expansion 1990 onwards
Tata Group remains a family-claimed business, as the relatives of the author (from the Tata
family) possess a lion's share stake in the organization. The current director of the Tata
gathering is Cyrus Pallonji Mistry, who assumed control from Ratan Tata in 2012. Tata Sons
is the promoter of all key Tata organizations and holds the majority of shareholding in these
organizations. The administrator of Tata Sons has generally been the director of the Tata
bunch. Around 66% of the Equity (fund) of Tata Sons is held by generous trusts blessed by
parts of the Tata crew.
The beginnings of Tata gathering can be followed back to 1868 when jamsetjinusserwanji
Tata built an exchanging organization managing in cotton in Bombay British India This was
trailed by the establishment of ruler plants in Nagpur in 1877 tajmahal inn in Bombay was
opened for business in 1903
Sir Dorab Tata the eldest child of jamsetji turned into the administrator of the gathering after
his dad's passing in 1904. Under him the gathering ventured into steel creation 1905 and
hydroelectric force era 1910
After the passing of Dorab Tata in 1934 NowrojiSaklatwala headed the gathering till 1938.
He was succeeded by Jahangir RatanjiDadabhoy Tata
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The gathering extended altogether under him with the foundation of Tata chemicals (1939)
Tata engines and Tata businesses 1945, Voltas 1954, Tata tea 1962, Tata consultancy benefits
1968, titan commercial enterprises 1984
Ratan Tata the officeholder director of the gathering succeeded JRD Tata in 1991
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On 27 September 2004, Tata Motors rang the opening ringer at the New York Stock
Exchange to stamp the posting of Tata Motors.
In 2005, Tata Motors obtained a 21% controlling stake in the Spanish transport and mentor
producer Hispano Carrocera. Tata Motors preceded with its market territory extension
through the presentation of new items, for example, transports (Starbus and Globus, mutually
created with auxiliary Hispano Carrocera) and trucks (Novus, together created with backup
Tata Daewoo).
In 2006, Tata framed a joint venture with the Brazil-based Marco polo, Tata Marco polo Bus,
to produce completely fabricated transports and mentors
Tata Marco polo is a transport assembling joint venture between Tata Motors (51%) and the
Brazil-based Marco polo S.A. (49%). The joint venture manufacturers and gathers completely
constructed transports and mentors focused at creating mass fast transportation frameworks.
It utilizes engineering and skill as a part of suspension and totals from Tata Motors, and
expertise in techniques and frameworks for weight training and transport body outline from
Marco polo. Tata Marco polo has propelled a low-floor city transport which is broadly
utilized by Chandigarh, Kolkata, Chennai, Coimbatore, Delhi, Hyderabad, Mumbai, Luck
now, Pane, Agra, Kochi, Trivandrum, and Bangalore transport partnerships. Its fabricating
office is situated in Dharwad.
In 2008, Tata Motors acquired the British car maker Jaguar Land Rover, manufacturer of the
Jaguar, Land Rover, and Daimler luxury car brands, from Ford Motor Company
Jaguar Land Rover PLC is a British premium automaker headquartered in Whitley, Coventry,
United Kingdom, and has been a wholly owned subsidiary of Tata Motors since June 2008,
when it was acquired from Ford Motor Company. Its principal activity is the development,
manufacture and sale of Jaguar luxury and sports cars and Land Rover premium four-wheeldrive vehicles. It also owns the currently dormant Daimler, Lanchester, and Rover brands.
Jaguar Land Rover has two design centers and three assembly plants in the UK. Under Tata
ownership, Jaguar Land Rover has launched new vehicles including the Range Rover
poque, Jaguar F-Type, the Jaguar XF, the latest Jaguar XJ the second-generation Range
Rover Sport, the fourth-generation Land Rover Discovery, and the fourth-generation Range
Rover
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In May 2009, Tata unveiled the Tata World Truck range jointly developed with Tata
Daewoo the range went on sale in South Korea, South Africa, the SAARCcountries, and the
Middle East at the end of 2009
Tata procured full ownership of Hispano Carrocera in 2009
Tata Hispano Motors Carrocera, S.A. was a transport and mentor producer situated in
Zaragoza, Aragon, Spain, and an entirely possessed auxiliary of Tata Motors. Tata Hispano
has plants in Zaragoza, Spain, and Casablanca, Morocco. Tata Motors initially procured a
21% stake in Hispano Carrocera SA in 2005, and obtained the staying 79% for an undisclosed
total in 2009, making it a completely claimed auxiliary, thusly renamed Tata Hispano. Over
the end of 2013, Tata Hispano shut the action, due the awful administration of Manchi Raja
Rao, leaving 287 unemployed individuals and shutting 70 years of history
In 2010, Tata Motors obtained an 80% stake in the Italian outline and building organization
Trilix for 1.85 million. The obtaining shaped piece of the organization's plan to improve its
styling and configuration abilities
In 2012, Tata Motors published it would put around INR 6 billion in the advancement of
Futuristic Infantry Combat Vehicles as a team with DRDO.
In 2013, Tata Motors published it will offer in India, the first vehicle on the planet to run on
compacted air (motors outlined by the French organization MDI) and named "Mini CAT".
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farming homes in Sri Lanka. Tata Tea Inc. in the United States transformed and showcased
moment tea from its office in Florida, based on sourcing of moment tea items out of Munnar
and Kerala. In 1993, they went into a joint Venture with Allied Lyons PLC in the UK to
structure Estate Tata Tetley.
In the mid-1990s, Tata Tea endeavored to purchase Tetley and the Lankan JVC obtained 51%
shareholding in Watawala Plantations Ltd.
In 1997 the organization was involved in a significant outrage known as the "Tata Tapes
contention" which identified with stores the organization gave to the prohibited United
Liberation Front of Asom (ULFA), an equipped battle gathering working in Assam.
By 1999, Tata Tea's brands had a consolidated piece of the overall industry of 25% in India.
[citation needed] The organization had 74 tea enclosures and was delivering 62 million
kilograms of tea a year, two-thirds of it bundled and marked. Towards the end of the year, the
tea business was hit by a dry season in quite a bit of India. Likewise, Russia, once the biggest
purchaser of Indian tea, briefly withdrew from the business.
2000 to 2010
Tetley tea canister from Canada
A critical venture for Tata Tea was the securing of the Tetley Group (situated in the United
Kingdom) in 2000. It was a 271 million ($432 million) leveraged buyout. Tata Tea
purportedly outbid the American aggregate Sara Lee in what was portrayed as the biggest
takeover of an outside organization by an Indian one to date. At the time, Tetley was the
world's second biggest tea organization after Unilever's Brooke Bond-Lipton and had a yearly
turnover of 300 million. It was the business pioneer in Britain and Canada and a prevalent
brand in the United States, Australia and the Middle East.
Created in 1837, Tetley was the first British tea organization to acquaint the tea sack with the
UK in 1953. The tea sack was trailed by the first round tea pack in 1989 and the 'no trickle,
no mess' drawstring pack in 1997. Tetley now helps for around two thirds of the aggregate
turnover of Tata Tea.
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From 2005, Tata Tea started a Restructuring activity to strip direct responsibility for in India,
a methodology encouraged by financed credits from the World Bank's International Finance
Corporation.
In 2006, Tata Tea obtained Eight O'clock Coffee, a U.S. based espresso maker from Griffin
Investors for $220m before being sold to Griffin, and the Eight O'clock Coffee brand was
initially possessed by The Great Atlantic & Pacific Tea Company from its beginnings in 1859
to 2003.
The global exchange union IUF scrutinized the organization in 2009 for not permitting
statutory maternity leave to pregnant tea pluckers, and for locking out 1,000 laborers on the
NoweraNuddy Tea Estate in West Bengal for so long that the neighborhood government
started disseminating sustenance coupons for crisis apportions to specialists and their families
In May 2010, a product sprayer passed on of suspected harming on a Tata home in Assam,
prompting dissents at which two more laborers were shot dead by uproar police.
2010 to present
On 30 January 2012, Tata Global Beverages and Starbucks advertised the formation of a 5050 joint Venture called Tata Starbucks Limited, which will claim and work Starbucks outlets
marked as Starbucks Coffee "A Tata Alliance" in India. The stores will begin starting to work
in 2012, starting at first in Delhi and Mumbai.
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2.3.1 Operations
The organization was renamed as Tata Global Beverages to incorporate the scope of
wellbeing and nutritious drinks it needs to go into. By means of backup organizations, Tata
Global Beverages produces 70 million kilograms of tea in India, controls 54 tea homes, ten
tea mixing and bundling industrial facilities and utilizes around 59,000 people.[10] The
organization claims 51 tea domains in India and Sri Lanka, particularly in Assam, West
Bengal in eastern India and Kerala in the south. The organization is the biggest producer of
Assam tea and Darjeeling tea and the second-biggest maker of Ceylon tea.
Set up in 1964 as a joint Venture with UK based James Finlay and Company to create worth
included tea, Tata Global Beverages has now item and brand vicinity in 50 nations. It is one
of India's first multinational organizations. The operations of Tata Global Beverages and its
auxiliaries concentrate on marked item offerings in tea, however with huge vicinity in manor
movement in India and Sri Lanka.
The solidified overall marked tea business of Tata Global Beverages helps around 86 every
penny of its united turnover with the staying 14 percent originating from mass tea, espresso
and speculation wage. With a range of approx 159 km under tea development, Tata Global
Beverages creates around 30 million kg of dark tea annually. Instant tea is utilized for light
thickness 100% teas, frosted tea blends and in the arrangement of prepared to-drink (RTD)
refreshments.
Tata Global Beverages possesses five brands in India: Tata Tea, Tetley, Kanan Devan, Chakra
Gold, and Gemini. The organization has a 100% fare arranged unit (KOSHER and HACCP
ensured) producing moment tea in Munnar, Kerala, which is the biggest such office outside
the United States. Tata Global Beverages has auxiliaries in Australia, Great Britain, United
States, Czech Republic and India.
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2.4.1 Acquisitions
NatSteel in 2004: In August 2004, Tata Steel consented to gain the steel making operations of
the Singapore based Natsteel for $486.4 million in cash. Natsteel had finished 2003 with
turnover of $1.4 billion and a benefit before assessment of $47 million. The steel
organizations of Natsteel would be controlled by the organization through a completely
claimed backup called Natsteel Asia Pte Ltd. The procurement was finished in February
2005.At the time of obtaining; Natsteel had a limit of around 2 million tons every annum of
completed steel.
Millennium Steel in 2005: Tata Steel gained a larger part stake in the Thailand-based
steelmaker Millennium Steel for an aggregate expense of $130 million. It paid us$73 million
to Siam Cement for a 40% stake and offered to pay 1.13 baht every offer for an alternate 25%
of the shares of other shareholders. For the year 2004, Millennium Steel had incomes of
us$406 million and a benefit after expense of us$29 million. At the time of obtaining,
Millennium Steel was the biggest steel organization in Thailand with a limit of 1.7 million
metric tons every annum, delivering long items for development and designing steel for auto
industries. Millennium Steel has now been renamed to Tata Steel Thailand and is
headquartered in Bangkok. On 31 March 2013, it held approx. 68% shares in the gained
company.
Corus in 2007: On 20 October 2006, Tata Steel marked an arrangement with Anglo-Dutch
organization, Corus to purchase 100% stake at 4.3bn ($8.1 billion) at 455 pence every share.
On 19 November 2006, the Brazilian steel organization Companhia Siderrgica Nacional
(CSN) propelled a counter offer for Corus at 475 pence every offer, esteeming it at 4.5
billion. On 11 December 2006, Tata preemptively upped its offer to 500 pence every offer,
which was inside hours bested by CSN's offer of 515 pence every offer, esteeming the
arrangement at 4.9 billion. The Corus board immediately prescribed both the reconsidered
offers to its shareholders. On 31 January 2007, Tata Steel won their offer for Corus in the
wake of offering 608 pence every offer, esteeming Corus at 6.7 billion ($12 billion).
In 2005, Corus utilized around 47,300 individuals around the world, including 24,000 in the
U.K. At the time of procurement, Corus was four times bigger than Tata Steel, regarding
yearly steel production. Corus was the world's ninth biggest maker of Steel, though Tata Steel
was at 56th position. The procurement made Tata Steel world's fifth biggest maker of Steel
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2 Rolling factory organizations in Vietnam in 2007: Tata Steel through its entirely possessed
Singapore auxiliary, Natsteel Asia Pte Ltd, gained controlling stake in two moving plant
organizations spotted in Vietnam: Structure Steel Engineering Pte Ltd (100% stake) and
Vinausteel Ltd (70% stake). The undertaking quality for the procurement was $41 million.
With this procurement, Tata Steel kicked it into high gear processes, a 250k tons every year
bar/wire bar factory worked by SSE Steel Ltd and a 180k tons every year strengthening bar
plant worked by Vinausteel Ltd.
2.4.2 Operations
The Tata Center in Kolkata, India
Tata Steel is headquartered in Mumbai, Maharashtra, India and has its showcasing central
command at the Tata Center in Kolkata, West Bengal. It has vicinity in around 50 nations
with assembling operations in 26 nations including: India, Malaysia, Vietnam, Thailand,
UAE, Ivory Coast, Mozambique, South Africa, Australia, United Kingdom, The Netherlands,
France and Canada.
Tata Steel basically serves clients in the auto, development, customer products, designing,
bundling, lifting and unearthing, vitality and force, aviation, shipbuilding, rail and protection
and security sectors.
plant in Bangladesh; a 10.5 million ton every annum limit plant in Vietnam (attainability
studies are in progress); and a 6 million ton every annum limit plant in Haveri, Karnataka.
2.4.4 Shareholding
As on 31 March 2013, Tata Group held 31.35% shares in Tata Steel. More than 1 million
individual shareholders hold approx. 21% of its imparts. Life insurance Corporation of India
is the biggest non-promoter shareholder in the organization with 14.88% shareholding.
The value shares of Tata Steel are recorded on the Bombay Stock Exchange, where it is a
constituent of the BSE SENSEX index, and the National Stock Exchange of India, where it is
a constituent of the S&P CNX Nifty.
Its Global Depository Receipts (GDRs) are recorded on the London Stock Exchange and the
Luxembourg Stock Exchange.
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Chapter-3
Review of Literature
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risk in LBO I s unforgettable. The companies has to make a correct choice to survive it has to
be more cautious before taking a decision.
The article just focuses on the effects and the case study it failed to analyze how the LBO
impact shareholders by giving proper analysis.
to analyze the impact of wealth creation. In case of Demerger Bajaj auto has been taken as
case study and the EVA is with other tools has been used to analyze the impact on the wealth
of shareholders and other impacts. The authors concludes by saying that buyback is more
common and poor return restructuring whereas Divestitures, Debt Reduction bring in good
news provided they are used carefully.
Corporate Restructuring
(Eckbo & Thorburn, 2013)
This is a theory paper which analyses in detail about the corporate restructuring. It talks about
6 modes of restructuring which includes Divestitures, spinoff, leveraged buyout, equity carve
out, tracing stock and leveraged recapitalizations. The study focuses on the how the financing
for the Restructuring takes place, what are the techniques used in restructuring, what are the
effects of Restructuring and the transaction volume of the restructuring. It uses Cumulative
abnormal return and average abnormal returns to analyses the effects of restructuring. It also
puts forth the point that the corporate restructuring increases the shareholders wealth.
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The article gives both the advantage sand disadvantages of EVA. It state that the EVA is only
a short term measure. Since profit maximization is an old concept the wealth maximization
plays a major role and EVA is the management measurement tools which is accepted by both
Owner and the management, concludes another.
From this paper the Importance of EVA and its uses in the corporate world as a tool for
measuring wealth maximization is taken to the consideration.
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Chapter-4
Research Design
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restructuring.
To analyze the profitability of the company after the restructuring.
To analyze the share price fluctuations before and after the restructuring.
To find which mode has given a greater increase in the shareholders wealth.
To analyze the best restructuring made to increase the shareholders wealth by the
sample taken.
Research design: The explanatory case study approach is used here. The aim is not to
generalize but to provide explanation for observed practices. Hence we cannot
conclude that the observation applies to all the companies. Case studies are viewed as
a way to use a theory to explain observations. If the theory provides convincing
explanations, it is retained and used further. If not, it is rejected and modified. If a
sufficient number of similar case studies can be collected, researchers would be able
to generate a theory.
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II.
Sampling technique
Our aim is to analyses the different modes of corporate restructuring and its impact on
shareholders wealth.
Hence we have selected academic research studies that meet four criteria, the articles
must:
Include a sufficient number of years financial data to permit statistical
analysis,
Company which has used different modes of restructuring
Two considerations led to the identification of 5 cases from 3 companies under one
group which includes Tata motors, Tata Steel and Tata global beverages and Tata
Motors. We have focused on a select set of studies published during the past decade
that systematically examine the impact of restructuring on performance and on
shareholders wealth. Since the data base includes variety forms of restructuring
measures of performance and methods of analysis we use relatively simple measures
to summarize and compare the study results. The published articles on the studies
included in this analysis appear in the appendix.
III.
Collection of data: Our data base is a set of research articles on Tata groups
restructuring and financial reports and performance analysis that appear in the largest
electronic source Moneycontrol.com which summarizes more than 800 business
financial datas. Share Price details are taken from NSE since it is the Standardized
stock exchange for the nation.
IV.
Tools applied: SVA (Shareholder value added) is the important tool in measurement
of Shareholders Value. Shareholder value added is the term used for the difference
between the wealth held by the shareholders at the end of a given year and the wealth
they held the previous year. (Fernandez, 2015).This is calculated by using Economic
value added (EVA). Other Financial Tool includes financial tools that will be used to
measure value is Market value added (MVA) and Return of Investment (ROI). EVA
measure gives importance on how much economic value is added for the shareholders
by the management for which they have been entrusted with. (Alam & Nizamuddin,
2012).Financial ratios are used to analyze the profitability of the operation after
restructuring.
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The study concentrates to analyze the impact of restructuring in most common mode of
restructuring and comparing them with each other. This study is based on the annual report of
the companies. Hence 3 companies were selected from a same group of companies and two
cases are selected from each and analyzed. The time horizon selected to study is from
Financial Year (FY) 2000 to Financial Year (FY) 2014. The forms of restructuring used in the
cases include Leveraged Buy-out, Joint Venture, Merger, acquisition.
The study has been conducted only on specific companies, hence it cannot be
generalized.
The corporate Restructuring may not be the only reason for increase/decrease in the
Page | 49
Chapter-5
Analysis and Interpretation
Page | 50
2011
28.55
1.00
0.07
3748.25
2.84
10.75
-1506.49
-4168.89
2010
39.26
1.00
0.05
3653.77
3.93
10.37
-1160.56
-6132.92
2009
19.48
2.00
0.04
917.87
1.95
6.41
-2136.39
-10515.69
2008
52.63
2.00
0.05
2956.20
5.26
18.96
72.16
-3326.34
2007
49.65
1.50
0.08
2660.59
4.96
25.82
62.50
-1597.71
During 2008-09 Tata motors acquired Jaguar and Land rover by Leveraged buyout a
method of corporate restructuring. Tata Motors saw its decline in profits after eight
years and as the worst global recession in more than seven years cut the demand for
the brands purchased by the company last year.
The Economic value addition and Market value addition which is the measure of the
shareholders wealth stood at -2136.39 and -10515.69 during the end of the financial
year in which the acquisition was made.
After two years of acquisition the EVA and MVA showed an increase of 29% and 60%
respectively from the year in which acquisition was made.
The EVA and the MVA has showed a decline state compared to the previous years
(i.e., before acquisition), which recovered over the next years showing positive impact
on shareholders wealth.
The return on capital employed was also at the lowest during the period which was
not a good sign for the shareholders.
The decrease in earnings per share has also caused a bad image for Tata motors in the
minds of the shareholders.
Page | 51
Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
On analyzing the share price we could find the share price has under gone a great
decline during the period yet it showed a significant increase in the later period after
the company started recovering from the losses.
The operating profit, net profit and gross profit ratio has decreased in the year of
restructuring by 36 %, 60% and 61% respectively which has shown a positive impact
Page | 52
in the subsequent years where the operating profit ratio has increased to 8% in the
year 2010 compared to the base year 2008.
Tata, the maker of Indica and Nano autos, saw a merged loss of Rs 2,500 crore for the
year finished March, while deals brought down to 37%. The gross profit and net profit
ratios also showed a significant decrease in the comparison with the previous years.
The last time the organization had made a misfortune was amid 2000-01, when it
encountered a comparative interest cut for trucks and its autos.
Be that as it may from 2010 after the subsidence passed by the offers of JLR
expanded significantly household request has begun hinting at change since January
2010.
Page | 53
Mar '11
Mar '10
Current Ratio
Mar '09
Quick Ratio
Mar '08
Mar '07
The Debt to equity ratio which was 0.8 stood went high till 1.06 and the same showed
an increase to a rate of 3% at the next year it stood at the highest 1.12.
Post-merger the Tata brought in lot of measures in JLR and Tata Motors to reduce the
cost
1. Single movements and down time at all three UK get together plants.
2. Supplier installment terms reached out from 45 to 60 days in accordance with
industry standard.
3. Receivables diminished by 133 million from 38 to 27 days.
4. Inventory diminished by 217m between June 2008 and March 2009 from 70 to 50
days.
5. Agreement with Unions to execute pay stop and more meeting expectations hours
6. Engineering and capital spending efficiencies.
7. Fixed showcasing and offering expenses diminished in accordance with deals
volume.
8. Reduction in all other non-work force related overhead expense.
Page | 54
The debt equity ratio remained high for the period until the loan for the LBO was
washed out, which created more risk for the shareholders.
The quick ratio and the current ratio after the acquisition period also remained low
indicating that the money was used to pay out interest and loans.
2005
39.94
1.25
0.10
1123.17
3.99
28.49
246.39
1158.67
2004
34.19
0.80
0.08
1070.97
3.42
31.49
505.49
-1313.60
2003
22.96
0.40
0.09
929.17
2.30
20.51
436.24
-387.68
2002
9.38
0.00
0.10
484.36
0.94
5.48
31.58
-1666.59
2001
-1.98
0.00
0.08
149.73
-0.20
0.55
-258.65
-1711.65
The EVA and MVA has shown a great increase from the year in which acquisition was
started and it stood at 436.24 and -387.68 at the year ending 2003.
Return on investment and Return on equity has also shown a great increase on the
year in which the acquisition was made, even subsequently the same has shown a
positive trend.
Earnings per share and the dividend ratio has also shown a great raise during the year
of acquisition followed by the positive trend in the subsequent years.
Page | 55
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02
Page | 56
The share price during the period has shown a significant rice due to the truth of the
shareholders and later the share price declined.
Even the profitability ratio seemed to be at its max during the year ending of
acquisition and later declined, which will also reduce the shareholders wealth.
The operating profit, gross profit and net profit ratio has shown an increase of 13%,
34% and 85% on the year of acquisition compared to the previous years.
Though the gross profit decreased, the net profit continued to show a positive trend in
upcoming years.
The major challenges faced by Tata Daewoo Commercial vehicles company after
restructuring was
o Strong technical and manufacturing capability
o Complimentary product range
o Beyond the bid price - Winning acceptance of DWCV employees
o Structured program to educate DWCV about India, Tata Group and Tata
Motors
o Communication (in Korean) to management, unions and employees
emphasizing Tata Motors capabilities and Tata Group's reputation for good
corporate governance
o Respecting strong work ethics of Koreans through significant efforts during
the Due diligence process
o Managing the Korean culture
o Respecting hierarchy and values
o Managing Unions
Source: (Kadle, 2007)
Page | 57
Which could have led to the decrease in the profitability in the year ending 2005
and 2006 which also led to the unstable fluctuations in share prices of the
company.
In 2005, Tata Motors acquired a 21% stake in Hispano Carrocera, a reputed Spanish
bus and coach manufacturer, with an option to acquire the remaining stake as well,
which can also be a reason for decline in the share price and the profitability ratio.
Page | 58
Mar '06
Mar '05
Current Ratio
Mar '04
Quick Ratio
Mar '03
Mar '02
The Company had more liquid cash after acquisition the cash was not utilized
properly.
The cash in hand was from the debts of the company which has increased after the
acquisition. The Debt equity ratio has increased to 0.61 and 0.53 for the period ending
March 2005 and March 2006 which is little bad sign for the shareholders.
But later Tata managed to succeed, the following point are worth to be noted
Page | 59
o Today twothirds of heavy commercial vehicle exports out of South Korea are
from Tata Daewoo.
o Increased market share in HCVs from 25% to 28% and achieved market share
of 13.5% in MCVs.
o Doubling of exports in 2004 and 2005 accounting for 66% of heavy truck
exports from South Korea.
Source: (Kadle, 2007)
Hence in the later years the share prices and the profitability also started increasing.
Page | 60
TATA TEA
$207million
$36 million
59740
54
TETLEY
$417 million
$42.6 million
110
0
Britain, Canada,
India
Australia, US
Source: (Dutt, Dwivedy, & Chiam, 2004)
2004
16.28
0.85
0.29
44.86
11.70
-293.44
-766.96
2003
12.56
0.70
0.31
35.04
10.04
-335.54
-850.39
2002
12.80
0.70
0.31
39.88
8.72
-322.87
-850.72
2001
17.82
0.90
0.28
59.14
13.50
-260.56
-743.23
2000
22.16
1.01
0.22
86.33
15.64
-159.15
-614.13
When comparing the shareholders value by the measure of EVA and MVA are in
negative but after three years in 2004 EVA and MVA has shown a positive change at
14.35% and 10.88% respectively compared to 2003. Later it continued its positive
trend.
The EPS and ROI have also decreased in the initial years and the recovery was in
2004.
The financial performance of Tata Global beverages has improved though at a slow
rate and both ROI and ROE had been positive so far.
Page | 61
Close
70
60
50
40
30
20
10
0
Mar '02
Mar '01
Mar '00
The market of Tata tea suffered a lot after the acquisition as it experienced disaster
financial performance. The company's overall sales was dropped by 9.38% and reached
Rs. 810.86 crores from Rs. 899.26 crores.
Also operating profit was dropped down by 26.21% and reached Rs 105.96 crore from Rs
142.59. crores. Market share price considerably dropped within a year.
Though the acquisition of Tetley was seen negatively by the market for the next 3 years,
Tata tea cautiously chose the approach of integrating the processes and exploring
Page | 62
synergies between the two companies with absence of any time pressure, while
maintaining operational independence.
For this, the overall emphasis was on growth rather than cost reduction. Also a structure
that supports joint working in several areas was adopted. A thoughtful process was
adopted for integrating the two companies with some of the highlight being:
Refinement of structure: Tata Tea adopted the hierarchical structure and assigned
responsibilities to every level from top to bottom.
Page | 63
Mar '02
Current Ratio
Mar '01
Quick Ratio
Mar '00
Debt Equity Ratio
The debt equity ratio has been quite constant yet the current ratio has been in decline
stage due to the large cash paid towards the interest of the loans taken for the purpose
of acquisition.
The current ratio and quick ratio also declined by 34% and 58% respectively in the
year 2001 compared to 2000 which has caused a reduction in the liquid cash available
with the company. This is not a good sign for the shareholders. The same continued to
decline by 51% and 69% in the year 2002.
There was lot of measures taken by the firm to improve the performance and survive.
Page | 64
Tetley Pre
Tata tea acquisition
acquisition
Position in the
value chain
requirement from 35
different countries
with an estimated
procurement of 3
Increased
tea requirements in
fluctuations in production
outsourcing
house
Margins highly
every week
Predictable
Margins inversely
margins
cycle
Global footprint
Domestic operations
Margins hedged
The financial performance of Tata Tea improved though at a slow rate and both ROA and
ROE had been positive so far.
For most part it was quite impossible to bring together the working of Tata Tea and Tetley
together as they both had different structures
Tetley focused on producing tea the packaging and selling, whereas Tata focused on
producing tea in own plantations and then selling.
Tetley was a global brand and hence had more standardized product mix, which
focused on quality, whereas Tata was an Asian brand and as per customer preference
focused more on making product as per local taste.
Hence apart from exchange of R & D and technological know how, and help to
grow in each other market both the companies could not be integrated to achieve
better results. Hence the CEO of both the companies felt that allowing independent
operation for both the companies along with a kind of Co-integration alliance.
Page | 65
2014
7.23
2.25
0.08
184.91
7.23
14.93
-62.50
6705.82
2013
4.18
2.15
0.13
153.48
4.18
13.39
-177.19
5587.94
2012
4.89
2.15
0.18
151.83
4.89
12.17
-306.80
4737.60
2011
2.92
2.00
0.21
80.29
2.92
9.56
-446.13
4010.26
2010
63.30
2.00
0.23
118.26
6.33
12.39
-475.16
-1450.63
In January 2011, Starbucks announced the 50:50 venture with the Tata Global
beverages.
Despite the failure in year 2007 one of the worlds leading coffee outlet decided to
have a joint venture with one of the worlds leading tea bag brand.
The joint venture has produced a great impact on the shareholders wealth of Tata
Global beverages.
EVA has increased by 31% during the same financials year followed by a growth of
42% and 655 and reached to -62.5
MVA has shown a positive figure and an increase of 18% to reach 4737.6 during the
same financial Year
ROE and ROI has also showed an increasing figure after the Joint venture with
Starbucks.
Page | 66
Profitability Ratio
25
20
15
10
5
0
Mar '14
Mar '13
Mar '12
Mar '11
Mar '10
Page | 67
The share price of the company has shown a significant raise during the period
The closing price in the year 2012 108.7 has increased to 123.5 and 150.05 showing
an increase of 14% and 38% respectively.
The net profit and the gross profit margins have increased by 51% and 67% in the
year of joint venture and 66% and 54% after the two year of venture when having
2011 as the base year.
The operating profit has also shown an increasing trend and has increased by 48 % in
year ending March 2014 and 43% by the year ending 2013 compared to the one
before the venture.
Page | 68
Mar '14
Mar '13
Current Ratio
Mar '12
Quick Ratio
Mar '11
Mar '10
The Current ratio has increased by 59% in the year of venture from 0.77 to 1.22 is
also followed by the decline for the year ending March 2013 again with an
increase to 1.34 for the year ending March 2014.
The Quick ratio also shows a same trend with an increase by 23 % in the year of
venture followed by a decline by 13% for the year ending March 2013 compared
to the year ending March 2011.
Debt Equity which was 0.25 has decreased to 0.17 and 0.08 in the subsequent
years showing a positive impact on the shareholders. It shows the financial
stability of the business.
Page | 69
2009
69.70
1.60
0.06
5668.30
7.12
15.01
2192.58
-14661.70
2008
63.85
1.60
0.06
5120.26
6.41
17.11
2385.76
23427.39
2007
72.74
1.55
0.05
4211.27
7.27
27.71
3006.23
8971.84
2006
63.35
1.30
0.05
3530.40
6.33
43.72
2873.45
16488.17
2005
62.77
1.30
0.05
3688.03
6.27
56.06
3170.46
12557.93
The EVA has increased to the extent of 4.62 % creating a positive impact on the
wealth of the shareholders, yet in the future the growth has declined thus the future
impact of the restructuring has created a negative impact of shareholders wealth
The MVA has shown a decline yet it has increased after a year and then declined, the
fluctuation in MVA is also because of the issue of preference share. Hence the same
cannot be taken for the analyses. When the MVA is considered without preference
shares it still stands negative at -9189.
The earnings per share has shown an increasing trend of 14.82%, Both ROE and ROI
has increased and stood at 7.27 and 27.71 creating the positive impact on the
shareholders wealth.
The Fluctuation in the future years of ROI and ROE does not depend only on the
financial performance of the company but may be because of the Recession which
occurred during the period.
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Page | 71
The share price of the Tata Steel was in boom to the maximum at 891.8 during the
period of acquisition later due to various reasons the prices of the shares faced a lot of
fluctuations.
The Gross profit and Net profit margins has also shown an increasing trend and
increased by 3% each, which couldnt be sustained hence showing a declining 13%
and 7% for the year ending March 2009 compared to the year ending March 2006.
Page | 72
Mar '09
Mar '08
Current Ratio
Mar '07
Quick Ratio
Mar '06
Mar '05
The Current ratio and quick ratio has shown an increasing trend and has ended up
with an increase of 28% and 90% respectively for the period ending March 2009
compared to the period ending March 2006.
Yet the Debt Equity ratio has shown an increasing trend creating a risk for the
creditors and investors which may have been caused mainly due to the method used
for the restructuring which is a Leveraged Buyout.
Page | 73
Page | 74
Chapter-6
Finding and Suggestion
Page | 75
6.1 Findings:
From the analysis of the major Restructuring done by the Tata group the following findings
has been made.
The EVA and MVA which is the measure of shareholders wealth has been increased in
60 % of the cases which was taken for analysis either at the end of the financial year
in which the restructuring is made or in later years. This also shows that the corporate
restructuring does not give immediate increase in the shareholders wealth yet in future
Tata Tetley the share prices went down when Tata struggled to hold Tetley.
Compared to other Cases the Tata motors complete acquisition of Daewoo has
created more wealth to its shareholders immediately and compared to others and it
the cost.
The return on equity which is considered to be traditional measure to measure
shareholders value has also shown an increase in 3 out of 5 cases, where Daewoo
ranks first followed by Starbucks and Corus showing an increase of 145%, 68% and
followed by Starbucks
The profitability has raised for almost 60% of the cases on the year of restructuring
examined. Tata Starbucks ranks number One in the increase in profitability which is
59% for operating profit, 67% for gross profit and 51% for net profit.
Daewoo ranks 2nd in the profitability increase showing an increase of 13%, 34% and
85% in operating profit, gross profit and net profit respectively.
Page | 76
In the subsequent years the profit has reduced compared to the base year which has
increased subsequently after various cost reduction techniques were introduced by the
company.
In 80% of the cases quick ratio and current ratio has shown a decrease trend. This
proves that the liquidity of the company is affected more during the process of
Page | 77
6.2 Suggestions:
From the analysis of Tata JLR, Tata Corus and Tata Tetley case studies it is evident and it can
be suggested that Corporate Restructuring from leveraged buyouts can significantly affect the
organization and its workers. Companys must take a cautious step while entering into an
leveraged buyout as it implies organizations may not immediately have a rise in the profits
and may take a long time and may need to cut back their operations and decrease the
quantity of paid staff, which brings about unemployment for the individuals who will be laid
off. Furthermore, unemployment after leveraged procurement of an organization can bring
about negative impacts of the general group, blocking its monetary success and advancement.
Since from the finding it is evident that this kind of procurement includes a high debt to
equity ratio, large organizations can undoubtedly secure smaller organizations with almost no
capital. In the event that the procured organization's returns are greater than the debt
financing, then all stockholders can benefit from the financial returns, further expanding the
value of a firm.
Then again, if the organization's returns are short of what the expense of the debt financing,
then corporate insolvency can come about. What's more, the high-premium rates forced by
leveraged buyouts may be a test for organizations whose money stream and offer of benefits
are deficient. The result can't just prompt an organization's insolvency yet can likewise bring
about a poor line of credit for the buyout investors.
The analysis of Tata Starbucks Case study it can be suggested that following joint venture can
bring about immediate results for the company rather than following leveraged buyouts as
analyzed joint ventures are far speedier in achieving the expected profits for the company.
From the analysis of debt equity ratio and current ratios it is suggested that the companies
should have a sufficient plans for the cash expenses, since the current equity reduces during
the period of restructuring.
The case study of Tata Daewoo suggests that buyouts share some characteristics with
acquisitions, but they also vary on a couple of important ones. The absence of an acquiring
firm, the fact that the managers of the firm are its acquirers and the conversion of the
acquired firm into a private business all has implications for value. If the buyout is financed
predominantly with debt, making it a leveraged buyout, the debt ratio will change in future
years, leading to changes in the costs of equity, debt and capital in those years.
Page | 78
The main preference of M&A is synergy that offers a surplus power that empowers improved
execution and expense effectiveness. At the point when two or more organizations get
together and are upheld by one another, the ensuing business is certain to increase enormous
benefit regarding monetary benefits and work execution.
Page | 79
Chapter-7
Conclusion
Page | 80
7. Conclusion
In addition to the analysis made by us (M, Gayen, & Meena, 2009) has made analysis on
three other modes of restructuring which includes Demerger, Buy back and Debt Reduction.
The analysis was made by using EVA as a measure of Shareholders Value. Their analysis was
made on various companies including Dabur, Bajaj, SAIL, Titan, India Cement, Apollo
finvest and Indian Rayon. The conclusion from the study is similar to the conclusion we have
arrived at. Hence it is evident that corporate restructuring does have an impact on
shareholders wealth positively but differs according to the framework of Restructuring
followed by the company, synergies too play an important role in the success of a Corporate
Restructuring as it would raise the percentage of success if the two companies are compatible
with each other. The results of (Abdel-Kader1 & Mentzeniot, 2007) and (KINAI &
MUTHAMA, 2000) which analyzed in a traditional way to find out the impact on
shareholders wealth also conclude that the Corporate Restructuring impacts the shareholders
wealth positively. The company also gains competitive advantage over the competitors.
This paper has given an exhaustive review of the writing on how Corporate
Restructuring influences shareholders wealth. Restructuring is a risky and multidimensional
occasion, whose effect on shareholders wealth is the net impact of various variables.
Since this is age where all the managements aim is to increase the shareholders wealth.
Corporate Restructuring will help the management to focus on the right path to improve the
shareholders wealth. The companies should also be cautious since restructuring involves lot
of risks.
Page | 81
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www.nseindia.com
www.moneycontrol.com
www.wikipedia.com
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Page | 83
Annexures
Page | 84