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TABLE OF CONTENTS

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

Historical Background of corporate restructuring


in India
Current scenario

1.3

Understanding the types of restructuring

13

1.4

Definitions

19

CHAPTER 2 - COMPANY PROFILE

13

24-37

2.1

Tata groups

25

2.2

Tata motors

28

2.3

Tata global beverages

30

2.4

Tata steel

34

CHAPTER 3 - REVIEW OF LITERATURE

38-44

3.1

Studies on corporate restructuring

39

3.2

Studies on Shareholders value and EVA

43

3.3

Review of Base paper

45

CHAPTER 4 - RESEARCH DESIGN

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

CHAPTER 5 - ANALYSIS AND


INTERPRETATION
Tata Motors-JLR

5.2

Tata Motors- Daewoo

55

5.3

Tata Tea- Tetley

59

5.4

Tata Tea- Starbucks

64

5.5

Tata Steel- Corus

68

6.1

CHAPTER 6 - FINDINGS AND


SUGGESTIONS
Findings

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

Tata motors JLR before and after acquisition

51

Tata motors Daewoo before and after acquisition

55

Position of Tata and Tetley before acquisition

59

Tata global beverages after acquisition of Tetley

59

Position of Tata global beverages after Merger.

63

Tata global beverages joint venture with Starbucks

64

Tata steel before and after acquisition of Corus

68

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LIST OF CHARTS
SL. NUMBER

CONTENTS

PAGE NUMBERS

Analyzing the share price of Tata motors JLR

52

Profitability ratios of Tata motors JLR

52

Solvency ratio of Tata motors JLR

54

56

Analyzing the share price of Tata motors


Daewoo
Profitability ratio of Tata motors Daewoo

Solvency ratio of Tata motors Daewoo

58

60

Analyzing the share price of Tata global


beverages- Tetley
Profitability ratio of Tata global beverages- Tetley

Solvency ratio of Tata global beverages- Tetley

62

10

65

12

Analyzing the share price of Tata global beverages


Starbucks
Profitability ratio of Tata global beverages
Starbucks
Solvency ratio of Tata global beverages Starbucks

13

Analyzing the share price of Tata steel Corus

69

14

Profitability ratio of Tata steel Corus

69

15

Solvency ratio of Tata steel Corus

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

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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.

1.1 Historical Background of corporate restructuring in India


India was a highly regulated economy in the past. Various licenses under various enactments
are needed to start an industry. The government participation was overwhelming and the
government intervention and controlling was impacting the economic growth. The economy
was closed and there was no free flow of demand and supply. In such a situation there was no
scope of corporate restructuring due to governmental restrictions.

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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.

1.2 Current scenario


Today, a wave of restructuring is sweeping the corporate sector over the world, taking within
its fold small & big entities, conglomerated and companies from all the sectors from
infrastructure to service. Corporate restructuring has become an integral part of new
economic paradigm. Conglomerates are used to combine business when that doesnt work,
demerger have become the order of the day. Corporate restructuring help in getting a
competitive edge for India in international market place.
Corporate restructuring has been a common activity in developed and free economy nations
like USA, Japan and European countries especially in UK where hundreds of mergers take
place every year.
The opening up of Indian economy has created opportunities to business community as a
whole. Even when the Indian economy is passing through recession situation, corporate are
capable of restructuring and contributing towards economic revival and growth. Despite the
sluggish economic scenario in India, deals have been on the increase. The companies by the
way of merger also reduce competitors in the market which gives them the price advantage in
the shrinking market

1.3 Understanding the types of restructuring


Corporate restructuring can be internal or external. Internal restructuring includes various
practices like separating a department involving reorganizations within the firm that do not
involve the sale or disposal of assets and external restructuring include acquiring outside
organization. It can also be broadly divided into financial restructuring and operational
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restructuring. Financial restructuring includes change in the structure of capital and


operational restructuring involves change in operational model of a company. (Sharma,
2007) in his writing argues that the modes restructuring includes amalgamation, spinoff,
divestitures, merger and acquisition, joint venture, leveraged buyout, equity carve out,
buyback of shares, privatization, demerger, franchising, takeover, disinvestment and slump
sale.

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

1.3.2 Spin offs


A method for redesigning a current corporate structure in which the supply of a business
division, backup or recently associated organization is exchanged to the stockholders of the
guardian organization in return for stock in the last. Part offs regularly happen when the
guardian organization wishes to draw a more noteworthy refinement in the middle of itself
and the part off business.

1.3.3 Split ups


A corporate activity in which a solitary organization parts into two or all the more
independently runs organizations. Shares of the first organization are traded for shares in the
new organizations, with the precise dissemination of shares relying upon every circumstance.
This is a compelling approach to separation an organization into a few autonomous
organizations. After a part up, the first organization stops to exist.

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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.

1.3.5 Merger and acquisition


Mergers and acquisitions (M&A) are both parts of vital administration, corporate money and
administration managing the purchasing, offering, partitioning and joining of diverse
organizations and comparative substances that can help an Endeavour become quickly in its
part or area of cause, or another field or new area, without making an auxiliary, other
youngster substance or utilizing a joint venture.
M&A can be characterized as a kind of Restructuring in that they bring about some substance
redesign with the plan to give development or positive worth. Combination of an industry or
segment happens when broad M&A movement focuses the assets of numerous little
organizations into a couple of bigger ones, for example, happened with the auto business
somewhere around 1910 and 1940.
The refinement between a "merger" and a "procurement" has gotten to be progressively
obscured in different regards (especially as far as a definitive monetary result), in spite of the
fact that it has not totally vanished in all circumstances. From a lawful perspective, a merger
is a legitimate combination of two organizations into one substance, while an obtaining
happens when one organization assumes control an alternate and totally creates itself as the
new holder (in which case the target organization still exists as an autonomous lawful
element controlled by the acquirer). Either structure can bring about the financial and
budgetary merging of the two elements. By and by, an arrangement that is a procurement for
legitimate purposes may be indirectly called a "merger of equivalents" if both CEOs concur
that joining together is to the greatest advantage of both of their organizations, while when
the arrangement is hostile (that is, the point at which the target organization would not like to
be acquired) it is quite often viewed as an "obtaining".

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1.3.6 Joint ventures


A joint venture (JV) is a business understanding in which the gatherings consent to create, for
a limited time, another substance and new resources by helping value. They practice control
over the endeavor and subsequently impart incomes, costs and resources.

1.3.7 Leveraged buyouts


The acquisition of an organization utilizing a lot of borrowed cash (bonds or advances) to
meet the expense of acquisition. Regularly, the assets of the organization being procured are
utilized as guarantee for the loans notwithstanding the benefits of the acquiring organization.
The motivation behind Leveraged buyouts is to permit organizations to make expansive
acquisitions without needing to confer a considerable measure of capital.

1.3.8 Equity carve out


Equity carve out (ECO), otherwise called a Split off IPO or a halfway spinoff, is a kind of
corporate rearrangement, in which an organization makes another auxiliary and hence IPOs
it, while holding administration control. Only piece of the shares are offered to people in
general, so the guardian organization holds a value stake in the backup. Normally, up to 20%
of auxiliary shares are offered to the general population.
The exchange makes two different lawful elements, the guardian organization and little girl
organization each with their own particular sheets, administration groups, financials, and
CEOs. Value cut outs expand the right to gain entrance to capital markets, empowering cut
out backup solid development opportunities, while evading the negative flagging connected
with a seasoned offering (SEO) of the guardian value.

1.3.9 Buyback of shares


The repurchase of shares by an organization to decrease the quantity of shares available.
Organizations will purchase back shares either to build the estimation of shares still
accessible (lessening supply), or to dispense with any dangers by shareholders who may be
searching for a controlling stake.

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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.

1.3.11 Slump Sale


In a Slump sale, an organization offers or discards the entire or significantly the entire of its
endeavor for a lump total foreordained thought. In a slump sale a gaining organization may
not be keen on purchasing the entire organization, be that as it may stand out of its divisions
or a running undertaking on a going concern premise. The deal is made at a total cost, without
qualities being allotted to the individual resources and liabilities exchanged. The business to
be hived-off is exchanged structure the transferor organization to a current or another
organization. A "Business Transfer Agreement is drafted containing the terms and states of
exchange. The acceptance accommodates exchange by the vender organization to the
purchaser organization, its business as a running concern with all resolute also mobile
properties, at the concurred thought, called "slump cost".

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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Franchising may be characterized as an agreement, either communicated or suggested,


composed or oral, between two persons or gatherings by which franchisee is conceded the
privilege to participate in the business of offering, offering, disseminating products and
administrations recommended in considerable part by franchiser. Operation of franchisee's
business is considerably connected with franchiser's trademark, administration imprint or
logo or promotion or business image.
Franchisee pays specifically or by implication the expenses to the franchiser. The franchising
may cover the whole framework or a pointed out domain or a pointed out retail outlet.
Generally franchisers have standard acceptance for all their franchisees on the grounds that
consistency and similarity is viewed as extremely important.

1.3.14 Take Over


Takeover is a system of gaining control over the administration of an alternate organization
either straightforwardly by gaining shares or in a roundabout way by taking an interest in the
administration. The target is to unite and gain substantial offer of the business. The
administrative system of assume control recorded organizations is administered by the
Securities and Exchange Board of India SEBI (Substantial Securing of Shares and Takeovers)
Regulations, 1997

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)

1.4.2 Market Value Added (MVA)


A high MVA shows the organization has made significant riches for the shareholders. A
negative MVA implies that the estimation of administration's activities and speculations are
short of what the estimation of the capital helped the organization by the capital business
sector (or that riches and quality have been annihilated).
MVA= Companys Market Value Invested Capital

1.4.3 Earnings per Share (EPS)


The allotment of an organization's benefit allotted to each one extraordinary offer of regular
stock. Income every offer serves as a pointer of an organization's productivity.
At the point when computing, it is more precise to utilize a weighted normal number of
shares extraordinary over the reporting term, on the grounds that the quantity of shares
remarkable can change after some time. Nonetheless, information sources once in a while

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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

1.4.4 Ratio Analysis


Ratio Analysis empowers the entrepreneur/supervisor to spot drifts in a business and to
contrast its execution and condition and the normal execution of comparable organizations in
the same business. To do this contrast your proportions and the normal of organizations like
yours and analyze your own particular degrees for a few progressive years, viewing
particularly for any unfavorable patterns that may be beginning. Degree examination may
give the exceptionally essential early cautioning evidences that permit you to tackle your
business issues before your business is demolished by them.

1.4.5 Liquidity Ratios


These ratios indicate the ease of turning assets into cash. They include the Current Ratio,
Quick Ratio, and Working Capital.

1.4.6 Current Ratio


The Current Ratio is one of the best known measures of monetary quality
Current Ratio =

Total Current Assets

Total Current Liabilities


The principle address this Ratio as: "Does your business have enough present advantages to
meet the installment timetable of its present obligations with an edge of security for
conceivable misfortunes in present resources, for example, stock shrinkage or collectable
records?" A for the most part satisfactory current proportion is 2 to 1. However whether a
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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:

Paying a few obligations

Expanding your current resources from credits or different borrowings with a


development of more than one year

Changing over non-current resources into current resources

Expanding your current resources from new value commitments

Returning benefits to the business

1.4.7 Quick ratio


The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of
liquidity
The Quick Ratio is a substantially more demanding measure than the Current Ratio. By
barring inventories, it focuses on the truly fluid resources, with esteem that is genuinely sure.
It helps answer the inquiry: "If all business incomes ought to vanish, could my business reach
its present commitments with the promptly convertible `quick' subsidizes available?"
A corrosive test of 1:1 is viewed as palatable unless the larger part of your "fast resources"
are in records receivable, and the example of records receivable gathering lingers behind the
timetable for paying current liabilities.
Quick Ratio = Cash + Government Securities + Receivables
Total Current Liabilities

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1.4.8 Working Capital


Working Capital is more a measure of money stream than a degree. The consequence of this
count must be a positive number. It is ascertained as appeared:
Working Capital = Total Current Assets - Total Current Liabilities
Investors take a gander at Net Working Capital over the long haul to focus an organization's
capacity to climate monetary emergencies. Advances are frequently fixed to least meeting
expectations capital prerequisites.
A general perception about these three Liquidity Ratios is that the higher they are the better,
particularly on the off chance that you are depending to any huge degree on creditor cash to
fund resources.

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.

1.4.10 Leverage Ratio


This Debt/Worth or Leverage Ratio shows the degree to which the business is dependent on
obligation financing (bank cash versus manager's value):
Debt/Worth Ratio =

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

1.4.11 Return on Investment (ROI) Ratio


The ROI may be the most vital proportion of all. It is the rate of profit for trusts put resources
into the business by its managers. So, this proportion tells the holder whether all the exertion
put into the business has been advantageous. In the event that the ROI is short of what the
rate of profit for an option, danger free venture, for example, a bank investment account, the
manager may be more astute to offer the organization, put the cash in such a funds
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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

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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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2.2 TATA Motors


Corporate Restructuring of Tata engines constrained
Tata entered the business vehicle division in 1945 in the wake of framing a joint venture with
daimler-benz of Germany. After years of commanding the business vehicle showcase in
India, Tata Motors entered the traveler vehicle advertise in 1991 by propelling the Tata Sierra,
a multi utility vehicle. Tata in this way dispatched the Tata Estate (1992; a station wagon
outline focused around the prior "Tatamobile" (1989), a light business vehicle), the Tata
Sumo (1994; LCV) and the Tata Safari (1998; India's first games utility vehicle).
Tata dispatched the Indica in 1998, the first completely indigenous Indian traveler auto.
Albeit at first censured via auto experts, its phenomenal efficiency, effective motor, and a
forceful promoting method made it one of the top rated autos in the historical backdrop of the
Indian vehicles industry. A more current adaptation of the auto, named India V2, was a real
change over the past rendition and rapidly turned into a mass top choice. Tata Motors
likewise effectively traded substantial quantities of the auto to South Africa. The achievement
of the Indica assumed a key part in the development of Tata Motors.
In 2004, Tata Motors obtained Daewoo's South Korea-based truck fabricating unit, Daewoo
Commercial Vehicles Company, later renamed Tata Daewoo.
Tata Daewoo (formally Tata Daewoo Commercial Vehicle Company and previously Daewoo
Commercial Vehicle Company) is a business vehicle maker headquartered in Gunsan,
Jeollabuk-do, South Korea, and an entirely possessed auxiliary of Tata Motors. It is the
second-biggest substantial business vehicle maker in South Korea and was procured by Tata
Motors in 2004. The key reasons behind the securing were to diminish Tata's reliance on the
Indian business vehicle market (which was in charge of around 94% of its deals in the
MHCV portion and around 84% in the light business vehicle fragment) and grow its item
portfolio by leveraging on Daewoo's qualities in the overwhelming tonnage division.
Tata Motors has together worked with Tata Daewoo to create trucks, for example, Novus and
World Truck and transports including Globus and Starbus. In 2012, Tata started creating
another line to fabricate aggressive and fuel-effective advertisement vehicles to face the
opposition postured by the passage of universal brands, for example, Mercedes-Benz, Volvo,
and Navistar into the Indian market

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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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2.3 Tata Global Beverages


Tata Global Beverages Limited (once Tata Tea Limited) is an Indian multinational non-jazzed
up drinks organization headquartered in Kolkata, West Bengal, India and a backup of the Tata
Group. It is the world's second-biggest producer and wholesaler of tea and a real maker of
espresso.
Tata Global Beverages markets tea under the real brands Tata Tea, Tetley, Good Earth Teas
and JEMA. Tata Tea is the greatest offering tea mark in India, Tetley is the greatest offering
tea mark in Canada and the second greatest offering in the United Kingdom and the United
States and JEMA is the greatest offering tea mark in the Czech Republic.
Tata Global Beverages ventured into the Indian bistro market with a 50/50 joint venture with
Starbucks Coffee Company. The coffeehouses marked as "Starbucks Coffee - A Tata
Alliance" will source espresso beans from Tata Coffee, a backup organization of Tata Global
Beverages
1980 to 1990
In the early 1980s, the tea industry in India was encountering climbing include and work
expenses and lessening edges and also high charges. India was confronting rivalry on the
world market not simply from China, additionally from different nations entering the
business.
In 1983, Tata Tea purchased the stake fitting in with the James Finlay gathering to structure
the individual element Tata Tea. In that year, the organization chose to move from the wares
business to buyer marking. The principal brand Tata Tea was presented. This was trailed by
different brands like Kannan Devan, Agni, Gemini and Chakra Gold. Disregarding being the
biggest market on the planet, the idea of marked tea required some investment to be accepted.
In 1987, Tata Tea set up a completely claimed backup, Tata Tea Inc., in the USA.
1990 to 2000
In the 1990s, Tata Tea chose to take its brands into the worldwide markets. It structured a fare
joint Venture with Britain's Tetley Tea in 1992. Other new ventures incorporated a larger part
enthusiasm for Consolidated Coffee Ltd. (Tata Coffee Ltd.) and a joint dare to oversee
Page | 30

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.

2.3.2 Promoting procedure


Disregarding a worldwide vicinity, the brands are conveyed contrastingly relying upon the
area. As Tata tea is far superior known in India and a capable brand there, it is pushed on this
business sector and nations with a substantial Indian populace. Hence, Tetley is the
organization's worldwide face and the biggest markets concentrate on the Tetley brand.
Where both brands exist together in one business, Tetley is situated as the premium brand.
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2.4 Tata steel


Tata Steel Limited (previously Tata Iron and Steel Company Limited (TISCO)) is an Indian
multinational steel-production organization headquartered in Mumbai, Maharashtra, India,
and an auxiliary of the Tata Group. It was the eleventh biggest steel creating organization on
the planet in 2013, with a yearly rough steel limit of 25.3 million tons, and the second biggest
private-division steel organization in India (measured by residential creation) with a yearly
limit of 9.7 million tons after SAIL
Tata Steel has fabricating operations in 26 nations, including Australia, China, India, the
Netherlands, Singapore, Thailand and the United Kingdom, and utilizes around 80,500
individuals. Its biggest plant is spotted in Jamshedpur, Jharkhand. In 2007 Tata Steel procured
the UK-based steel producer Corus which was the biggest universal obtaining by an Indian
organization till that date.
It was positioned 486th in the 2014 Fortune Global 500 positioning of the world's greatest
partnerships it was the seventh most important Indian brand of 2013 according to Brand
Finance.
On 16 February 2012 Tata Steel finished 100 years of steel making in India.
Tata Iron and Steel Company were secured by Dorabji Tata on 25 August 1907, as a major
aspect of his dad Jamsetji's Tata Group. By 1939 it worked the biggest steel plant in the
British Empire. The organization dispatched a significant modernization and development
program in 1951. Later in 1958, the system was moved up to 2 Million metric tons every
annum (MTPA) project. By 1970, the organization utilized around 40,000 individuals at
Jamshedpur, with a further 20,000 in the neighboring coal mines. In 1971 and 1979, there
were unsuccessful endeavors to nationalize the company. In 1990, it began extension plan
and made its auxiliary Tata Inc. in New York. The organization transformed its name from
TISCO to Tata Steel in 2005.

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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

Page | 35

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.

2.4.3 Extension plans


Tata Steel has set a focus of attaining to a yearly generation limit of 100 million tons by 2015;
it is getting ready for limit development to be adjusted approximately 50:50 between
Greenfield advancements and acquisitions. Overseas acquisitions have officially included an
extra 21.4 million tons of limit, including Corus (18.2 million tons), Natsteel (2 million tons)
and Millennium Steel (1.2 million tons). Tata arrangements to include an alternate 29 million
tons of limit through acquisitions.
Major Greenfield steel plant extension activities arranged by Tata Steel include a 6 million
ton every annum limit plant in Kalinganagar, Odisha, India; an extension of the limit of its
plant in Jharkhand, India from 6.8 to 10 million tons every annum; a 5 million ton every
annum limit plant in Chhattisgarh, India (Tata Steel marked an update of understanding with
the Chhattisgarh government in 2005; the plant is confronting solid challenge from tribal
people); a 3 million ton every annum limit plant in Iran; a 2.4 million ton every annum limit
Page | 36

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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3.1 Studies on Corporate Restructuring


The effect of corporate divestments on shareholder wealth:
The South African experience
(Bhana, 2006)
This paper studies about the effect of voluntary sells offs on the shareholders wealth. It
focuses only on the particular mode of restructuring which is sell-off and only on voluntary
situation and also it analyses the impact on both the selling and the buying company. The tool
used is average abnormal returns and cumulative abnormal returns, t-statistics and correlation
with other tools to analyze the effects of corporate Restructuring since there was no common
tools those days these tools were used. Yet the tools dont give a proper result of the
shareholders wealth. The study focuses of only on the sell-offs and other modes of
Restructuring is omitted. Unlike previous study this focus on period after sell-off.it analyses
the shareholders wealth till the period of 120 days from the date when the selloff is
announced. The study has only used share price to analyze the shareholders wealth.
It concludes that the selling company which performs poor prior to the selling continues to
perform badly and the selloff is used as an action taken to improve the welfare of
shareholders which doesnt perform well. The buying company continues to have positive
excess return of 1.70 % till 120.Thus it is concludes that the South African companies which
perform poor selloff to improve the shareholders wealth.

Corporate Restructuring through Leveraged Buyouts


(Miglani, 2011)
This article was written by poojamiglani gives an introduction of corporate Restructuring by
the way of leveraged buyout. The article talks about the process of leveraged buyout and the
context of leveraged buyout in India. It list out the major leveraged buyouts used in India. It
also talks about the limitations and effects of leveraged buyout. The study also analyses the
Tata Corus as a case study and analyses how the restructuring has effected in debt equity ratio
and interest coverage ratio both prior and after the acquisition.
The article is concluded by saying that the LBO is in nascent stage and the growth of the
Indian companies has created a lot of opportunities to them to do leveraged buyout yet the
Page | 39

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.

Corporate Restructuring and Bondholder Wealth


(Renneboog & Szilagyi, 2006)
This is a theory paper which gives an overview of the existing papers on corporate
restructuring. It reaches beyond asset restructuring and talks about leveraged buyout, security
issues, stock options, buyback and exchanges. It concludes by saying that many issues are
remaining unsolved and the focus is only on US. It states that the critical issues are not
analyses. This paper gives us an opinion that there is lot of scope in research under the topic
of corporate restructuring.

A Study of Different Modes of Corporate Restructuring


(Sharma, 2007)
The study is a theory paper which talks in the view of India and it focuses on the various
modes used in restructuring. This paper takes about the history of restructuring and how
Indian companies are now moving global. It critically analyses the various modes of
restructuring and how the same is used in India and also the volume of transactions and
advantages of each restructuring in India.

Corporate financial Restructuring: an analysis of select cases


(M, Gayen, & Meena, 2009)
The paper talks about the corporate restructuring in the context of India, the authors have
used various tools to evaluate three form of corporate restructuring and its impact on wealth
creation that includes Share buyback, debt reduction and demerger. The authors suggest that
the current CFOs have lot of options to choose from the types of restructuring and their aim
was to suggest which mode creates more wealth to the shareholders. The buyback has been
analyzed with taking the case study of lot of Indian companies were the buyback has
happened. The study analyses the pre-announcement price tender price, and repurchase price
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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.

Nature of corporate administration and regulation


(Laura Horn, 2012)
In this paper horn has emphasized on the basically political nature of corporate administration
regulation and contends that the change of corporate administration regulation is a piece of a
more extensive political venture of financial rebuilding and market making in the European
Union and delineated that how organization law has ended up progressively centered around
the privileges of shareholders, while specialist rights have been relegated to the area of social
policies and labor law.

Buyouts from developing countries


(Zahid & Shah, 2011)
Through this review we can understand that businesses from developing countries have
started to buy out businesses of developed countries as their economies are doing better
compared to the developed world due to low cost of production. Indian and Chinese
businessmen are the most aggressive compared to rest in this regard.
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Functional analysis to develop a multilevel theory on transfer effect over


successive acquisitions
(Finkelstein & Haleblian, 2002)
In this paper the reviewers applied the principle of learning curve to (Nelson & Winter,
1982) theory of routinization and conducted functional analysis to develop a multilevel
theory on transfer effect over successive acquisitions. The routinization theory states that
repeated performing of an activity increases efficiency. Transfer effect is the impact of an
event on the outcome of its subsequent events. A positive transfer effect exists when an event
has a positive impact on the outcome of subsequent events and a negative transfer effect
transmits negative effect to the outcome of subsequent events.
Finkelstein &Haleblian studied 192 US-based companies that engaged in at least two
acquisitions over a period of 20 years, spanning over 1970 to 1990. They studied relationship
between performance and similarity of environmental conditions of acquirer and target,
similarity of acquirer and target, and similarity first and second targets. They found that the
similarity of the environments of acquirer and target firms had a positive transfer effect. The
striking finding of this study was that the second acquisition, irrespective of whether it was
similar or dissimilar to the first one, had a negative transfer effect and contributed less to
firms performance. The finding was counterintuitive in case of similar targets. The authors
opined that the negative outcome might be due to misapplication of the knowledge of first
acquisition in the second acquisition and/or change in conditions from acquisition to
acquisition, which makes an apparently similar second acquisition dissimilar.

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3.2 Studies on Shareholders wealth and EVA


Courting EVA
(Radhakrishnan, 2003)
This is an article published in Tata Sons website showing how they deal with the EVA and
what are the techniques used by them to analyze Economic value addition. It talks about how
the Tata Group over time has imbibed revolutionary technologies, new business models,
innovative human resource strategies, and better accounting methods to build a dynamic
conglomerate. It emphasis the difficulty of calculating EVA over the conglomerate. It focuses
on the uniform calculation of EVA which still cannot be done due to the quirks of particular
industries. It also talks about the difficulty of calculating weighted average cost of capital
(WACC) since the same depends on the financial markets.
It answers why the EVA of Companies of TATA sons group is negative stating that EVA
negative years will be built into the EVA capital budgeting framework which will help the
company to go EVA positive in the future. He points of that the analysis done by them shows
a positive turn around for few of its group companies in the future.

Performance measures of shareholders wealth: an application of economic


value added (EVA)
(Alam & Nizamuddin, 2012)
The articles focuses on the concept of Economic value addition which acts as an important
role in the measurement of shareholders wealth. It states that EVA is the value based
performance measure which gives the measure of value creation by the management for the
shareholders. It puts forth the history of EVA stating that Wellace was one of the earliest to
mention about the concept of EVA. It further continues to focus on the meaning of EVA.
The Calculation of EVA is discussed in details and the formula provided for the computation
is
Economic Value Addition=Net operating Profit after Tax-Cost of capital

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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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3.3 Base paper Review


An Investigation of the Impact of Corporate Restructuring on Shareholder
Value: A Case Study of Companies Quoted On the Nairobi Stock Exchange
(KINAI & MUTHAMA, 2000)
The research paper which was done by Kenyatta university is a detailed study on how the
corporate restructuring impacts the shareholders value, the paper is old and it analyses not
only the shareholders value but also the customer perception, creditors value etc. The tools
used include primary data collection through primary data i.e., questionnaire. It focuses only
on the organizational restructuring. It analyses the various procedures used and
implementation of the same. The study uses EPS, ROE and other financial ratios to analyses
the impact of shareholders wealth. The sampling is selected only from the companies which
is listed in the stock exchange of Nairobi. The study concludes by saying that the 71% of the
companies which has undergone corporate restructuring show increase in the shareholders
Value. The study has drawback of using traditional method to analyses the value of the
shareholders. The study is limited only to the organizational restructuring. Hence there is
scope to research on financial restructuring part.

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Chapter-4
Research Design

Page | 46

4.1 Need of the Study


There are lot of motives behind Corporate Restructuring few of them being increasing
market share, need for capital, expansion, ineffective management and to be a market leader
yet maximizing shareholders wealth have never been a motive for Corporate Restructuring. It
has been considered to be the implied motive for Restructuring; it was not at all necessary to
create shareholders wealth through Restructuring. There was only little paper in India which
had analyzed the methods of restructuring used and it failed to focus on the impact of
shareholders wealth. This paper analysis the various modes of Restructuring used in India and
how does a Restructuring impact the shareholders wealth.

4.2 Objective of the study

To analyze the impact of corporate Restructuring on shareholders wealth.


To analyze the change in the impact with the change in the modes used in the

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.

4.3 Research methodology


I.

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.

4.4 Scope of the study

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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.

4.5 Limitation of the study

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

wealth of the shareholders.


The data before 2000 will be difficult to obtain.
The analysis is made only on the view of the parent company, the impacts on the

subsidiary company/amalgamated company and its shareholders are omitted.


Since the analysis depends on secondary data, the accuracy of the data is not known
The study uses lot of assumptions, which may change over the period and perception.
The cost of capital is difficult to determine due to variation in the financial markets.

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Chapter-5
Analysis and Interpretation

Page | 50

5.1 Tata Motors-Jaguar Land Rover


Table 1: Before and after acquisition of JLR
Particulars
EPS
Dividend Ratio
WACC
NOPAT
ROE
ROI
EVA
MVA

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

5.1.1. Analyzing the Share price and profitability ratio


Fig. 1: Share price fluctuations TATA-JLR
Closing shareprice
300
250
200
150
100
50
0

Fig. 2: Profitability Ratios TATA-JLR


Profitability Ratios
12
10
8
6
4
2
0

Mar '11

Mar '10

Mar '09

Operating Profit Margin(%)

Mar '08

Mar '07

Gross Profit Margin(%)

Net Profit Margin(%)

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

5.1.2. Analyzing the Solvency ratio


Fig. 3: Solvency Ratio TATA-JLR
Solvency Ratios
1.2
1
0.8
0.6
0.4
0.2
0

Mar '11

Mar '10

Current Ratio

Mar '09
Quick Ratio

Mar '08

Mar '07

Debt Equity Ratio

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.

5.2 Tata Motors Daewoo


Table 2: Before and after acquisition of Daewoo
Particulars
EPS
Dividend Ratio
WACC
NOPAT
ROE
ROI
EVA
MVA

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

Tata acquired Daewoo Commercial vehicles and renamed it as Tata Daewoo


Commercial Vehicles Company which was South Koreas 2nd largest manufacturer of
medium and heavy duty trucks in 2004.The Main reason behind the acquisition was to
improve the technology of commercial vehicles and to become strong in the market of
commercial vehicle

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

5.2.1 Analyzing the Share price and profitability ratio


Fig. 4: Share price Fluctuation TATA-DAEWOO
Close
200
180
160
140
120
100
80
60
40
20
0

Fig. 5: Profitability Ratio TATA-DAEWOO


Profitability Ratio
16
14
12
10
8
6
4
2
0
-2

Mar '06

Mar '05

Mar '04

Operating Profit Margin(%)

Mar '03

Mar '02

Gross Profit Margin(%)

Net Profit Margin(%)

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

5.2.2 Analyzing the Solvency ratio.


Fig. 6: Solvency Ratio TATA-DAEWOO
Solvency Ratio
1.2
1
0.8
0.6
0.4
0.2
0

Mar '06

Mar '05

Current Ratio

Mar '04
Quick Ratio

Mar '03

Mar '02

Debt Equity Ratio

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

5.3 Tata Global beverages Tetley


Tata Tea as it was called before was half of the size of Tetley before the acquisition, a quick
look to the comparison between them prior to acquisition.

Table 3: Before acquisition of Tetley


Particulars
Turnover
operating profit
Employees
Tea Estates
Key Market

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)

Analysis of shareholders wealth


Table 4: After acquisition of Tetley
Particulars
EPS
Dividend paid
WACC
NOPAT
ROI
EVA
MVA

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.

5.3.1 Analyzing the Share price and profitability ratio

Page | 61

Fig. 7: Share price Fluctuation TATA-TETLEY

Close
70
60
50
40
30
20
10
0

Fig. 8: Profitability Ratio TATA-TETLEY


Profitability Ratio
20
18
16
14
12
10
8
6
4
2
0

Mar '02

Mar '01

Operating Profit Margin(%)

Mar '00

Gross Profit Margin(%)

Net Profit Margin(%)

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:

Identification of common belief: An international consulting firm was


commissioned to identify the common belief between the two companies and
suggest ways to bring them closer.

Creation of structure: A strong culture was developed to create a group that


includes steering committee, their task forces and managers of both the
companies.

Refinement of structure: Tata Tea adopted the hierarchical structure and assigned
responsibilities to every level from top to bottom.

Page | 63

5.3.2 Analyzing the Solvency ratio


Fig. 9: Solvency Ratio TATA-TETLEY
Solvency Ratio
3.5
3
2.5
2
1.5
1
0.5
0

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

Table 5: After Merger of Tetley


Merger
Implications

Tetley Pre
Tata tea acquisition

acquisition

Consolidated Post acquisition


Company has moved up the

Position in the

40% of turnover came

100% turnover came

value chain 84% of turnover

value chain

from packed tea bags

from packed tea bags


outsourced entire

came from packed tea bags

requirement from 35

Today 70% of TATA Tea

different countries

requirement is outsources from

with an estimated

20 different countries thus

produced 95% of its

procurement of 3

reducing the risk associated with

Increased

tea requirements in

million kegs of tea

fluctuations in production

outsourcing

house
Margins highly

every week

arising out of various factors.

Predictable

correlated with tea

Margins inversely

margins

cycle

correlated to tea cycle


UK and USA account

Global footprint

Domestic operations

for bulk sales


Global presence
Source: (C, Asma, H, Jervin.J, & Shekher.G, 2012)

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

5.4 Tata Global Beverages Starbucks


Table 6: Joint venture with Starbucks
Particulars
EPS
Dividend Ratio
WACC
NOPAT
ROE
ROI
EVA
MVA

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

5.4.1 Analyzing the Share price and profitability ratio.


Close
200
180
160
140
120
100
80
60
40
20
0

Fig. 10: Share price fluctuations TATA-STARBUCKS

Fig. 11: Profitability Ratio TATA-STARBUCKS

Profitability Ratio
25
20
15
10
5
0

Mar '14

Mar '13

Mar '12

Operating Profit Margin(%)

Mar '11

Mar '10

Gross Profit Margin(%)

Net Profit Margin(%)

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

5.4.2 Analyzing the solvency ratio


Fig. 12: Solvency Ratio TATA TEA - STARBUCKS
Solvency Ratio
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

Mar '14

Mar '13

Current Ratio

Mar '12
Quick Ratio

Mar '11

Mar '10

Debt Equity Ratio

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

5.5 Tata Steel-Corus


Tata Steel being a winner in Steel industry in India driven by slower growth and potential
profits, acquired Corus of British. It was the most significant acquisition of 2006 which
moved Tata Steels from the position of 56th to 6th largest producer of steel. The total value of
the Tata Corus acquisition amounted to 6.2 billion (US $ 12 billion). Tata steel declares a
bid of 608 pence per share to go beyond the final bid from Brazilian steel maker Compuhia
siderurgica Nacional (CSN) of 603 pence per share.

Table 7: Before and after Acquisition of Corus


Particulars
EPS
Dividend Ratio
WACC
NOPAT
ROE
ROI
EVA
MVA

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.

5.5.1 Analyzing the Share price and profitability ratio


Page | 70

Fig. 13: Share Price Fluctuations TATA-CORUS


Close
1000
900
800
700
600
500
400
300
200
100
0

Fig. 14: Profitability Ratios TATA-CORUS


Chart Title
45
40
35
30
25
20
15
10
5
0

Mar '09

Mar '08

Mar '07

Operating Profit Margin(%)

Mar '06

Mar '05

Gross Profit Margin(%)

Net Profit Margin(%)

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

5.5.2 Analyzing the solvency ratio


Fig. 15: Solvency Ratio TATA CORUS
Solvency Ratio
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

Mar '09

Mar '08

Current Ratio

Mar '07
Quick Ratio

Mar '06

Mar '05

Debt Equity Ratio

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.

The debt equity ratio recovered in the later years.

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

the increase in the shareholders wealth is guaranteed.


At the initial stages of any restructuring the share prices boom us expecting a high
return yet the later fluctuation depends on the success of the acquisition, in case of

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

ranks number one in the study.


Tata Global beverages alliance (Joint venture) with the Starbucks also has created

more wealth to the shareholders immediately as it ranks 2nd in the study.


EPS and dividend has shown an increase in 3 out of 5 cases. The highest increase
being Daewoo followed by Starbucks and Corus. This shows that the corporate
restructuring creates more wealth to the shareholders, but the Leveraged buyout used
in case of JLR and Tetley has caused a decline in EPS and Dividend ratio which
recovered in the later years after various cost reduction methods was used to reduce

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

15% respectively on the year of acquisition compared to the base year.


Return on investment increased only in 2 out of 5 Cases where Daewoo ranks first

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

restructuring and post restructuring.


When analyzing the debt equity ratio in the cases it was found that the Leveraged
buyout mode resulting in increase in the ratio which increases more than the ideal
ratio of 0.5 and also the same creates lot of risk to the equity shareholders since the

debts is more than the equity.


In case of Daewoo and Starbuck deal the debt to equity ratio is decreasing creating a

positive impact on the shareholders.


As seen the leveraged buyout has helped Tata to grow from and domestic company to
a multinational company. It has also focused to increase the shareholders wealth by
doing the same. Three of the Biggest LBOs so far in India belongs to Tata fist being
Tata Tetley, followed by Tata Corus and the last Tata JLR.LBO helps the small firms
to go global. The recent RBIs permission to Indian banks to grant funding to LBO

will help this mode to grow further.


Synergies between companies has to be considered for successful restructuring

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.

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Chapter-7
Conclusion

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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.

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www.nseindia.com
www.moneycontrol.com
www.wikipedia.com
www.bseindia.com
www.tejas.iimb.ac.in
www.scribd.com/doc/51396384/Economic-Value-Added-EVA-of-Sample-Companies

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Annexures

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