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Contents
1. Some of the land mark cases
2. Meaning of corporate restructuring & concept of
Corporate Restructuring and value creation
Valuation 3. Balance sheet and value creation.
4. Major forms of restructuring and motives
5. Role of securities markets: Market for corporate
control
6. Role of various regulators
7. Corporate governance & corporate restructuring
Dr. Jinesh Panchali
Date: 21st November, 2022 8. Course related discussion
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Market for corporate control Corporate restructuring: Re-allocation

Stock market essentially performs three functions

• Mobilisation of community’s savings
Re-allocation(efficient) of assets and
• Allocation of these savings in efficient manner
• Pricing of corporates to ensure efficient utilisation of these liabilities
savings

It is essentially pricing of corporate control

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Corporate restructuring: Meaning Balance Sheet and Value creation

Concept of Value

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Issues: Motives
Inefficient management:
absolute inefficiency
relative inefficiency
Synergy (due to complementary assets) : financial or operational
Efficient capital structure
Cost cutting due to overlapping and economies
Strategic realignment:
Resource sharing
Corporate Restructuring: Acquiring capabilities (Technology)
Under valuation by market
Forms and motives Tax consideration
Market power
Expansion of market (scope)
Expansion of products (scale)
pre-empting competition
Agency
Growth/Size maximisation
Hubris
Other personal motives
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Issues: Industry life cycle Framework of Corporate restructuring

1. Reorganizing assets
1. Mergers and demergers
2. Acquisitions and divestitures
Maturity 3. Liquidation
Size of 2. Reorganizing liabilities
business 1. Exchange offers – buy back
Growth Decline 2. Leverage re-cap
3. Reorganizing ownership
1. LBO
2. IBC induced restructuring
3. ESOPs
Introductory
3. Corporate strategic forms
1. JVs
2. Collaborations
Life (in years)
Nascent
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Routes of asset allocation

Assets side restructuring

Merger Acquisition Takeover
Alliance Joint venture
Spin off Split up Slump sale Asset sale
Motherson story
Liability side restructuring
Be part of something bigger
Buyout - delisting (motherson.com)
Leveraged buyout (Management, employees, Outsiders)
Leveraged recapitalisation
Equity reduction
Buy back
Disinvestment (Privatisation)
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Role of securities market professionals Role of securities market professionals

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Role of securities market professionals Role of securities market professionals

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M&A for market professionals Issues: Wealth creation

Identifying and matching Price and non price impacts
M&A specific funds
M&A arbitrageurs funds Merger may have substantial effect on the product quality but
relatively little effect on price
Valuation skills and reporting
Regulatory and tax advisory Impact of on non price variables, like:
Takeover code – Compliance advisory a. Innovation
Target identification (from investment perspective)
b. Quality
Due Diligence Service
Institutional investors and proxy advisory
M&A and law | HR |
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Issues: Wealth creation Issues: Wealth creation

Shareholders : Price impact : short term and long term Merger savings may come in form of :

Cost savings from re-allocating production across firms (with or without

Employee: Cost per employee | No. of employees | Surplus per
employee
Society: Incremental productivity | Welfare impact | Cost savings
from re-allocating production across firms (with or without
increasing technological capabilities)
increasing technological capabilities)
Savings in average costs associated with increase in total output
Technological progress : arising from diffusion of know how or increased
incentives for R&D

Purchasing economies or savings in factor prices (such as intermediate

goods or cost of capital)

Reduction in Slack
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Transaction and production cost efficiency

Issues: Wealth creation
Organisation learning - improvement in skills and abilities
These efficiency comes in form of
Organisation capital - firm specific informational assets
Real cost savings: Those savings that correspond to savings of
productive resources in economy Combination of both lead organisation to have managerial and
non-managerial capabilities
Re-distributive cost saving: gains distribute from one stakeholder to
another stake holder leads to

Transaction and production cost efficiency

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Issues: Scale and scope Issues: EBITDA multiple

22-11-2023 Source: Bain & Company

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M& A Performance
Issues: Performance

Do these transactions achieve what they promise?

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M& A Performance

Role of various regulators

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Various regulators: CR M&A in India: Takeovers

NCLT

Others
(RoC, PCB,
Competition Evolution and Role of Takeover code
Commission
Unions, etc)

Corporate
Equality of treatment to all shareholders in process
Restructuring
SEBI and
FEMA & RBI Stock
exchanges

Tax
IBC
authorities

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M&A in India: Mergers

Role of company courts

Corporate Governance &
Guardian of public interest corporate restructuring

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Issues: Large shareholders Issues: Other stakeholders

Responsibility of large shareholders What about the interests of

particularly – funds Debt holders
Employees
Their position on both the sides Society
Government, etc.?

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M&A in India: Defending the company Deal ends

Board’s responsibility
Merger starts
Business judgement rule

Preferential treatment Issues in integration

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Reasons for failure

Process
• Post Merger Integration which includes work culture differences.

• Taxation and structuring issues. 1. Acquisition strategy

Prepare a team – give mandate – name the project
• Economy of country
2. Investment bankers and Advisors
• Permissions from NCLT and sectoral authorities.
3. Target identification and selection
• Litigation and Court battles. 4. Due diligence
• Oppositions by the Stakeholders. 5. Valuation + negotiation
• Prejudicial to the welfare of Shareholders. 6. Deal Structuring
Regulatory (tax and law) compliance and optimisation
• Due-diligence went wrong
7. Arrange for funds
• Clauses like Non-solicit and Non-compete being for unreasonable periods. 8. Documentation (+negotiation)
• Aggressive and high leveraged acquisitions. 9. Integration

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M & A Process driven

Evolution of M&A in India: Select Cases

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Merger waves
Merger Waves

Characteristics First Second Third Fourth Fifth Sixth Seventh

Time 1893-1904 1915-1929 1946-1970 1980-1989 1990-2000 2003-2008 2010 onwards
Payment Cash Equity Equity Cash / Debt Equity Cash plus equity Cash plus equity
Creation of Creation of Expansion &

Discussion on trends and performance M&A process monopolies

Nature Friendly
oligopolies
Friendly
Diversification
Friendly
LBOs
Hostile
Globalisation
Friendly
Value creation
Friendly
Expansionary
Competitive
Vertical
Characteristics Horizontal Conglomerate Hostile Cross border Private equity E-commerce
WW - II - Great Oil crisis - Market
Ended with WW -I Market crash Depression Crash Market Crash Dot.com Bubble burst Global financial crisis waiting…..
IT revolution | Growth of private
Infrastructure Fintech and e-
Industry revolution Competition laws Junk bond market Financial market equity - innovation in
revolution commerce revolution
Fueled by deregulation financial markets

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Issues: EBITDA multiple

M& A Performance

22-11-2023 Source: Bain & Company

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Themes to watch out in 2023 Global M&A Advisors

• Cash rich companies making strategic, and bold movers

• Continued prevalence of small to mid sized deals

• A balance of scale and scope deals

• Valuation under pressure

• Companies reshaping portfolios through demergers and divestitures

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Thank you!!!!!
For further interactions

Dr. Jinesh Panchali

Mobile: 8779304026 / 7506351972

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