Business Restructuring

Pushparaj Kulkarni
Objective of the session.
To study the various business
restructure alternatives.
Session objectives..
Reasons & drivers of restructuring.
Methods of restructuring.
- Mergers & acquisition
- Takeovers
- Privatisation
- Spin-off and Split ups etc.
What is corporate
restructuring?
Restructuring is a process by which a
firm does an analysis of itself at a
point of time and alters what it owns
and owes.
Restructuring would sometimes
radically alter a firms capital
structure, asset mix and organization
so as to enhance the firms value
Factors responsible for
corporate restructuring:
1. global competition
2. technological breakthrough
3. managerial innovations
4. regulator changes
5. communistic economies
6. expansion of international trade
Achievements from
restructuring.
Attribute to sharper forces
Better corporate governance
Improvement in managerial incentives
Motivation and elimination of cross
subsidies
Broad Areas of
Restructuring
Financial Restructuring
Technological restructuring
Market Restructuring
Manpower Restructuring
Financial Restructuring

This involves decisions relating to
acquisition, merger, joint ventures
and strategic alliances. This also
deals with restructuring the capital
base and raise finance for new
projects
Technological
Restructuring

This involves investment in research
and development and also alliances
with overseas companies to exploit
technological strength.

Market Restructuring

This involves decision regarding the
product market segments where the
company plans to operate based on
its core competencies
Manpower Restructuring

This involves establishing internal
structures and processes for
improving the capability of the people
in the organization to respond to
changes.

Methods of
Restructuring
Mergers:
Acquisition:
Takeover:
Divesting:
Spin-off:
Split ups:
Privatization: (Going Private)
Buy back
Merger
Merger refers to a business combination
of two or more firms in which only one
firm survives and the other firm (s) go out
of existence. E.g., HDFC BANK AND
TIMES BANK.
Another form of merger are:
- subsidiary merger
- reverse subsidiary merger
Acquisition

Takeover
It refers to the process of acquiring
control over the management of a
firm by acquiring a substantial
portion of its equity.
Firm continues to exist but under a
new management.

Divesting
Divesture involves outright sale of a
portion of the firm to outsider. The
portion may be division, unit or assets of
the firm. It is simplest form of sell-off.
The process.
- Developing sales strategy
- Valuation
- Drafting of offer documents
- identify potential buyers.
- Negotiation & closing the deal.
Spin off
It is a popular form of corporate
restructuring in nineties.
A new entity is created to takeover the
operations of particular division or unit.
The shares of new entity are distributed
in pro-rata basis to existing shareholders.
Share of new company are listed and
traded on stock exchange separately.
Split Ups
It is process of complete break up of a
company into two or more new
companies.
All the divisions are converted into
separate companies and parent company
ceases to exist.
The shares of new company are
distributed among the existing
shareholders of the firm.
Privatization
The public company can go into
private if the public holding in the
company is eliminated.
This can be done in two ways:
- Repurchase of all outstanding shares.
- Leveraged buyout deal (LBO)
Buy Back of shares
The company has surplus funds but does not have
suitable projects to invest the funds in.
Companies aim to maximize profits. For this they
continuously seek to improve current projects,
start new projects, expand into newer markets,
acquire other companies etc. However there may
be a situation wherein the company has lot of
surplus money but it is unable to identify suitable
avenues to invest that money. In such a situation
it may consider using the surplus funds to buy
back its shares from existing shareholders.
Objectives of Buy Back:
Shares may be bought back by the company on
account of one or more of the following reasons
1. To increase promoters holding.
2. Increase earning per share.
3. Rationalize the capital structure by writing off
capital not represented by available assets.
4. Support share value.
5. By takeover bid.
6. To pay surplus cash not required by business.
Joint Ventures..
It is a type of business combination in
which companies enter into an agreement
to provide their resources towards
achievement of specific business goals.
For example: one firm will provide
technology and other will provide finance.
Reference.
Financial Management by Ravi
Kishore, Taxmanns.