NEED FOR

CORPORATE
RESTRUCTURING
HARSHIT GOYAL
SAURABH MITTAL
RADHIKA DUGGAL
SABHYA SRIVASTAVA
JERIN ABRAHAM GEORGE
PGDM 2 (SECTION C)
What is Corporate Restructuring??
• Corporate restructuring is a corporate action taken to significantly
modify the structure or the operations of the company.

• This usually happens when a company is facing significant problems

and is in financial jeopardy

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Types of Corporate Restructuring
Expansion Techniques Divestment Techniques

Mergers Demerger

Takeovers Spin – Off

Joint Ventures Split ups

Liquidation
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Reasons for
Corporate
Restructuring
1) Change in the Strategy.

• The management of the troubled company attempts to improve the

company’s performance by eliminating certain subsidiaries or
divisions which do not align with the core focus of the company.

• The division may not seem to fit strategically with the long-term vision
of the company.

• Thus, the company decides to focus on its core strategy and sell such
assets to the buyers that can use them more effectively.

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2) Lack of Profits.

• The division may not be profitable enough to cover the firm’s cost of
capital and cause economic losses to the firm.

• The poor performance of the division may be the result of the

management making a wrong decision to start the division or the
decline in the profitability of the division due to the increasing costs or
changing customer needs.

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3) Cash Flow Requirement.

• A sale of the division can help in creating a considerable cash

inflow for the company.

• If the company is facing some difficulty in obtaining finance,

selling an asset is a quick approach to raising money and
reduce debt.

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Benefits of
Corporate
Restructuring
• Reviving a declining business.

• Increasing a company’s value.

• Preparing company for sale or transfer to the next generation.

• Gaining a competitive advantage.

• Expansion into other geographical areas.

• Helping the company to position itself for growth.

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Some Examples….
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The PepsiCo Inc. Spin Off
In 1997, PepsiCo Inc. spin
off its KFC, Pizza Hut and
Taco Bell restaurant
businesses as a publicly
traded company.
• Driver: Intense pressure from Mc Donalds and Burger
Kings, Diet Pepsi slipped to 4th position.
• Motive: To better focus on its Pepsi Beverage
Operations and Frito – Lay snack business, whose
international profits jumped 16% in the first nine months
of 1996.
• The new company was named as Tricon Global
Restaurants Inc.
• The company spin off 100% of its restaurant unit to
stockholders who received shares in new company.
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Restructuring of Sterlite Industries
• Sterlite Industries is a leading producer of Copper in
India.
• It is a part of Vedanta Resources, a London listed metals
and major, with aluminium, copper and zinc operations
in India and Australia.
• In Sept. 2008: Announcement of Restructuring Plan.
• Motive: To simplify its corporate structure into 3
commodity focused groups:
Copper & Zinc Lead
Aluminium and Energy
Iron Ore
• Effective Date: April 2009.
• Plan involved:
Demerger of its aluminium and energy
businesses to Madras Aluminium Company
(MALCO)

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Conclusion:
• Corporate restructuring allows the company to
continue to operate in some way.
• The management of the company tries all the
possible measures to keep the entity going on.
• Even when the worst happens and the company is
forced to pieces because of the financial troubles, the
hope remains that the divested pieces can function
good enough for a buyer to acquire the diminished
company and take it back to profitability.

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Thanks!

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