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CORPORATE RESTRUCTURING

DEFINATION –PROCESS BY WHICH COMPANY CAN CONSOLIDATE ITS BUSINESS OPERATIONS AND STRENTHEN ITS POSITION FOR ACCOMPLISHING THE DESIRED OBJECTIVES.

OBJECTIVES OF CORPORATE RESTRUCTURING
• GROWTH-IN ORDER TO SURVIVE ,ORGANISATION MUST GROW OVER A PERIOD OF TIME .GROWTH IS MEASURED IN TERMS OF SALES, PROFIT AND ASSETS.

2)

ECONOMIC STABILITY – THE ECONOMIC CYCLES AND CONDITIONS MAY FORCE THE FIRM TO CONSOLIDATE OR DIVERSIFY THE BUSINESS OPERATIONS

TECHNIQUES OF CORPORATE RESTRUCTURING

EXPANSION DIVESTMENT OTHER TECHNIQUES

EXPANSION TECHNIQUES MERGERS TAKEOVERS JOINT VENTURES STRATEGIC ALLIANCES FRANCHISING HOLDING COMPANIES .

DIVESTMENT TECHNIQUES • • • • • SELL OFF DEMERGER MBA-MANAGEMENT BY OUT LEVERAGE BY OUT LIQUIDATION .

.EXPANSION • INCREASING THE EXISTING CAPACITY OF THE BUSINESS AND DOES NOT INVOLVE ANY ADDITIONAL EXPERTISE .

MERGERS .INCOME TAX 1961 ..AMALGAMATIONS.USES THE TERM AMALGAMATION FOR MERGERs.AND ACQUISITIONS • MERGER-COMBINATION OF TWO OR MORE COMPANIES INTO ONE COMPANY IS TERMED AS MERGER. .

SO THAT NEW COMPANY CAN BE FORMED AND ENGAGED. .JOINT VENTURES • JOINT VENTURE IS A FORM OF BUSINESS COMBINATION IN WHICH 2 UNAFFLIATED BUSINESS FIRMS CONTRIBUTE FINANCIAL AND PHYSICAL ASSETS .

STRATEGIC ALLIANCE STRATEGIC ALLIANCE IS THE ARRANGEMENT OR AGREEMENT UNDER WHICH TWO OR MORE FIRMS COOPERATE IN WHICH BOTH THE FIRMS ACHIEVE COMMERCIAL OBJECTIVES. .

ITS CONCEPT COVERS THE EXTENSIVE RANGE OF MARKETING AND ARRANGEMENTS OF GOODS AND SERVICES .FRANCHISING IT IS AN IMPORTANT MEANS OF DOING THE BUSINESS IN SEVERAL COUNTRIES . .

• SLUMP SALE-TRANSFER OF WHOLE OR A PART OF THE BUSINESS CONCERN IS A SLUMP SALE. • DEMERGER-ACT OF SPLITTING OF A PART OF EXISTING COMPANY TO BECOME A NEW COMPANY. .OR WHEN A COMPANY SELLS OR DISPOSES WHOLE OF THE UNDERTAKING IS SLUMP SALE.DIVESTMENT TECHNIQUES • SELL OFF-DIVESTURE IS SALE OR DISPOSITION OF ASSET .

• 6)LIQUIDATION-Owners decide to liquidate the business to stop further losses.• 4-MBO-Purchase of a business by its management when existing owners are trying to sell its business to third parties due to its slow growth or lack of managerial skills in running the business. . • 5)LBO-method of acquiring a company with money that is nearly all borrowed.

1)MERGER THROUGH ABSORPTION MEANS-An absorption is a combination of two or more companies into an 'existing company'.Mergers(Amalgamation) • Combination of two or more companies into one company is merger. liabilities and shares to TCL . For example. TCL. TFL transferred its assets. an acquired company (a seller). survived after merger while TFL. • FORMS OF MERGERS • MERGER THROUGH ABSORPTION • MERGER THROUGH CONSOLIDATION. (TCL). an acquiring company (a buyer). All companies except one lose their identity in such a merger. ceased to exist. absorption of Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd.

2)MERGERS THROUGH CONSOLIDATION • Merger through Consolidation:. In this form of merger. combining of two book publishers or two manufacturing companies in same area.is a combination of two or more firms in the same area of business.A consolidation is a combination of two or more companies into a 'new company'. • TYPES OF MERGERS Horizontal merger:. For example. all companies are legally dissolved and a new entity is created. .

is a combination of two or more firms involved in different stages of production or distribution of the same product. For example.VERTICAL MERGERS • Vertical merger:. . joining of a TV manufacturing(assembling) company and a TV marketing company or joining of a spinning company and a weaving company.

insurance investment and advertising agencies. electronic products. L&T and Voltas Ltd are examples of such mergers. merging of different businesses like manufacturing of cement products. . fertilizer products. For example.CONGLOMERATE MERGERS • Conglomerate merger:.is a combination of firms engaged in unrelated lines of business activity.

LEGAL PROCEDURE FOR MERGERS Companies Act 1956. .Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association.this Act lays down the legal procedure• Permission for merger:. • Information to the stock exchange:.The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger.

3) Approval of board of directors:The board of directors of the individual companies should approve the draft proposal for amalgamation and authorise the managements of the companies to further pursue the proposal. .

An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court.4)Application in the High Court:. .

sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. and also. The date of the court's hearing will be published in two newspapers. on the petitions of the companies. the regional director of the Company Law Board will be intimated.• 5)Shareholders' and creators' meetings:. the High Court will pass an order. .After the approval of the shareholders and creditors.The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme • 6)Sanction by the High Court:.

its certified true copies will be filed with the Registrar of Companies. • 8 Transfer of assets and liabilities:.After the Court order.• 7 Filing of the Court order:. . with effect from the specified date.The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme.

the acquiring company will exchange shares .9 .cash of the acquired company.As per the proposal.Payment by cash or securities:. • . These securities will be listed on the stock exchange.

.it also involves rename of the publicly traded companies. privately held company purchases a publicly held company and.this allows private companies to become publicly traded companies.REVERSE MERGERS An act where a private company purchases a Publicly traded company and shifts its management into it . becomes public TRADED COMPANY .reverse merger. In other words. as part of the new entity.

Cost of Merger Another Facet of Merger consideration is the cost of Merger The cost is divided into two parts Direct Monetary Cost and Human Resource Cost DMC Includes-Legal Costs. A Merger can also face other legal complexities-Consultant Fees-Depending on the Merger need what type of services one asks the consultant to provide. documents and filling required by state law. . depending on the organizing of the Mergers.

Members and Directors .Other Monetary costs are-Relocation or moving expenses involved with personal issues.Etc. Human resource Costs HRC are difficult to estimate The major factor involved in staff time includes Committee meeting and meeting of shareholders.

companies analyze financial ratios such as book value. as well as other factors. . To calculate the swap ratio.DETERMINATION OF SWAP RATIOS SWAP RATIOS The ratio in which an acquiring company will offer its own shares in exchange for the target company's shares during a merger or acquisition. earnings per share. such as the reasons for the merger or acquisition. profits after tax and dividends paid.

Company A • Share price -400 • Total number of shares-52M • Market capitalisation20800 M company B • Share price -150 • Total number of shares76M • Market Capitalisation 11400 M .Lets takes an example of two companies to know what happens to the stock.

.l.The new company decides to issue 60Millions of shares of the new entity to the existing shareholders. • The two individual companies A and B get merged into single entity AB. • Total market capitalisation of both the companies will be 20800+11400=32200 million • Now finding up the value company A should have 20800(20800+11400)= 65% is market capitalisation after the merger and company B should have 11400(20800+11400)=35% .

Number of shares company A after Merger =60 *65/100 =39 Million shares Number of shares company B after merger =60 *35/100=21 million shares. Merger swap ratio of Company A will be = old shares held by A/shares of company A after Merger= 52/39 =4:3 same as Merger swap ratio of company B=old shares held by B /shares of company B after Merger =76/21 =3.62:1. .

Distress Restructuring Distress causes due to poor structuring of working capital at various levels of business …like work in progress . . bills receivable.This term Distress Restructuring belongs to the term Corporate Finance. companies must undertake restructuring strategies and activities to come of these problems.

and it may involve financial restructuring between the firm. and its equity investors.Financial( distress) Restructuring A situation where a firm’s operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action. its creditors. Financial distress may lead a firm to default on a contract. .

its creditors. but also – Threat of default or bankruptcy and its effect on the company – Defined to capture the costs and benefits of using large amounts of debt finance . and its equity investors. and it may involve financial restructuring between the firm. • Financial Distress – Includes default and bankruptcy. • Financial distress may lead a firm to default on a contract.Definition of terms • A situation where a firm’s operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action.

INSOLVENCY Cash flow shortfall Contractual obligations Firm cash flow time .

What happens in financial distress No financial restructuring 49% Financial distress 51% 47% Private workout Financial restructuring 83% 53% Reorganize and emerge Legal bankruptcy Chapter 11 7% Merge with another firm 10% Liquidation .

• How is it Done:• Tender Offer :-Shareholder have an option to submit a • portion OR to submit all shares. .BUY BACK OF SHARES • Buyback is reverse of issue of shares by a company where itoffers to take back its shares owned by the investors at aspecified price. • Dutch Auction :-Companies state a range of price at which it’s willing to accept & buy.

Why buy back is done • • • • Why Companies Go For Buy Back :Increase Promoters Stake Unused Cash Market Perception Exit Option monitoring of accounts and legal controls • Show rosier financials .

Anil Ambani (Reliance Energy) bought back 6. shares of the company were trading at Rs.1.000 .EXAMPLE Buy Back Of Reliance Energy:equity shares of the company in the morning on Tuesday at nearly Rs. Result:-At noon Friday.279.20 from its previous close Mr.50.To increase the price of its shares.28.1.23/share Reason:.310 up by Rs.

1956 .Act For Buy Back Of Shares:Section 77A. 77AAand 77B of the Companies Act.

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