Corporate Restructuring

Unit – 12
Contents – Unit 11
• Expansion
• M&A
• Tender Offers
• Asset Acquisition
• JV
• Contraction: Spin offs, Split offs
• Divestitures
• Equity Carve-outs and Asset Sales
Types of restructuring
Merger: A merger refers to a combination of two or more
companies into one company. It may involve absorption or
consolidation.

In an absorption, one company acquires another company.

In a consolidation, two or more companies combine to form a new

company.

Purchase of Division or Plant: A company may acquire a division or

plant of another company. Typically, the acquiring company
acquires the assets and takes over the liabilities of the concerned
division and it pays cash compensation to the selling company.
Types of restructuring
Takeover: A takeover generally involves the acquisition of a certain
stake in the equity (usually between 50 percent and 100 percent)
capital of a company which enables the acquirer to exercise control
over the affairs of the company.

Leveraged Buyout: A leveraged buyout is a variant of takeover or

purchase of a division, effected substantially with the help of debt
finance.
Types of restructuring
While acquisitions lead to expansion of assets or increase of
control, divestitures result in contraction of assets or
relinquishment of control. The common forms of divestitures are
briefly described below:

Partial Selloff: A partial selloff involves the sale of a business

division or plant of one company to another. It is the mirror image
of a purchase of a business division.

Sale of Equity Stake: In a sale of equity stake, one investor (or a

group of investors) sells an equity stake, usually representing a
controlling block, to another investor. This transaction is a mirror
image of a takeover.
Types of restructuring
Demerger: A demerger involves the transfer by a company of one or
more of its business divisions to another company which is newly
set up. The company whose business division is transferred is called
the demerged company and the company to which the business
division is transferred is called the resultant company.

Equity Carveout: In an equity carveout, a parent company sells a

portion of its equity in a wholly owned subsidiary. The sale may be
to the general investing public or a strategic investor.

PSU Disinvestment: PSU disinvestment or privatisation involves

transfer of ownership (represented by equity shares), partial or
total, of public enterprises from the government to individuals and
non-government institutions.
Types of restructuring
• Tender offer

• Leveraged buyout

• Management buyout
Types of restructuring
Divestitures

• Demerger

• Spinoff

• Split-off

• Split-up

• Equity carve-out/ Sale of Equity Stake

• Partial Selloff

• Equity Carveout

• PSU Disinvestment
Types of restructuring
Divestitures
Mergers, asset purchases, and takeovers lead to expansion in some way or the other. They are based on the principle of synergy which says
2 + 2 = 5! Divestitures, on the other hand, involve some kind of contraction. They are based on the principle of “anergy” which says 5 – 3
= 3!

Sources of value creation

Strategic realignment
Transfer to a natural owner
Sharper focus
Improved incentives and accountability
Division of a business empire

Managing Divestitures
Regard Divestments as a Normal Part of Business Life
Consider Divestment as One of the Many Responses to a Situation
Approach Divestments Positively
Look at Divestments in Terms of Relative, not Absolute Value
Growth strategies

Mergers Acquisitions

Joint Strategic
ventures alliance
Business Alliances
Business alliances such as joint ventures, strategic alliances, equity partnerships, licensing, franchising alliances, and network alliances
have grown significantly. In many situations, well-designed business alliances are viable alternatives to mergers and acquisitions. No
wonder they have become commonplace in diverse fields like high-technology, media and entertainment, automobiles, pharmaceuticals,
oil exploration, and financial services.

Business alliances come in a variety of forms. The most commonly used forms are: joint ventures, strategic alliances, equity
partnerships, licensing, franchising alliances, and network alliances.

Rationale for Business Alliances

Sharing risks and resources

Access to new markets

Cost reduction

Favourable regulatory treatment

Prelude to acquisition or exit