You are on page 1of 17

Change Management

Prof. Dr. Martin Gyambrah

Corporate Restructuring .

. or 3. Capital structure. Operations. 2. Ownership that is outside its ordinary course of business.What is Corporate Restructuring Any change in a company’s: 1.

Why engage in corporate restructuring? • Sales enhancement and operating economies • Improved management • Information effect • Wealth transfers • Tax reasons • Leverage gains • Management’s personal agenda .

….Corporate Restructuring? • 1980’s: corporate restructuring identified with leveraged buyouts. • Early 1990’s: corporate restructuring identified with troubled debt restructuring: workouts and reorganization • Two primary types (voluntary and involuntary).. . millions of employees have been removed through downsizing. • Over the past two decades over 2/3 of all acquired businesses have been divested.more generally. divestitures. however.

Triggers of Restructuring • Four primary triggers for restructuring activity:  Environmental  Governance  Strategy  Performance .

Antecedents of Restructuring Environment Governance Restructuring Strategy Financial Performance Restructuring .

Antecedents of Restructuring 8 • Strategy . Over diversification . Poor strategy or implementation . Leverage • Performance  Poor or declining performance  Difference between desired and actual performance  Assets are undervalued  Perceived threat of takeover .

.Antecedents of Restructuring 9 • Environmental  Competition  Takeover threats  tax motivations • Governance  Ineffective management  Complacent board  Inadequate incentives  Lack of ownership concentration (institutional investor activism).

cost cutting .Restructuring consists of all or some of the following: • Closing plants • laying off employees • moving operations • reorganization of operations (very popular) • cost cutting. cost cutting.

Impetus for restructuring • Stock market – Activist shareholders – Pension funds • Increasing competition – Global – Technological • Change in regulation .

dual class stock. Restructuring hexagon (Slightly modified from the McKinsey book) Information gap Operating improvement Incentives management Divestiture activity. debt restructuring . tracking stock. carve outs. spin offs Financial engineering: leverage. employee ownership.

Dimensions of restructurings • Asset restructuring – Acquisitions – Divestitures – Spin offs – Corporate downsizing – Outsourcing • Restructuring ownership structure. leverage – Exchange offers – Share repurchases .

control – Limited partnerships – Leasing – Joint ventures – Securitization – Project finance • Incentive restructuring – Value based management programs • Corporate control .Dimensions of restructuring-II • Ownership vs.

Plant closings.Employee stock options plans (ESOPs) .LBOs (divisional MBOs) . spin-offs.Modes of Restructuring • Financial Restructuring . split-ups). 67% for competitive advantage -19% succeeded) b) Downscoping • Divestitures (sell-offs.Leveraged recapitalizations • Asset Restructuring a) Downsizing • Employee layoffs • Mixed results (89% cite expense reduction-46% succeeded.Equity financed share repurchases . Liquidation .Targeted share repurchases (greenmail) .

 Sell-offs: Assets are sold to another firm for cash and/or securities. .Modes of Restructuring Divestitures (sell-offs versus spin- offs): Spin-off: represents a pro-rata distribution of shares of a subsidiary to shareholders.

Restructing Outcomes • Strategy • Focus on related or unrelated units (less total diversification) • Innovation • Employee Effects • Trust of management • Poor communication • Motivation • Turnover • Performance • Generally positive (except when fighting a takeover) • Determined by use of funds .