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Corporate Restructuring means rearranging the business of a

company for increasing its efficiency and profitability. It is tool to
catapult value to the organization as well as to the investors. It is the
fundamental change in a company's business or financial structure
with the motive of increasing the company's value to shareholders or
creditors. Hence, corporate restructuring is a comprehensive process
by which a company can consolidate its business operations and
strengthen its position for achieving its short-term and long-term
corporate objectives. Corporate restructuring is vital for survival of a
company in competitive environment.



NEED/PURPOSE OF CORPORATE RESTRUCTURING

• To expand the business or operations of the company.
• To carry on the business of the company more economically or more efficiently
• To focus on core strength
• Cost Reduction by deriving the benefits of economies of scale.
• Obtaining tax advantage by merging a loss making company with a profit making
company.
• To have access to better technology.
• To have better market share.
• To overcome significant problems in a company.
• To become Globally Competitive.
• To eliminate competition between the companies.


TOOLS OR STRATEGIES OF CORPORATE

• Amalgamation
• Merger
• Demerger
• Reverse Merger
• Joint Venture
• Takeover/Acquisition

AMALGAMATION
Amalgamation is a legal process by which two or more companies are joined
together to form a new entity or one or more companies are to be absorbed or
blended with another and as a consequence the amalgamating company loses its
existence and its shareholder become the shareholder of the new or amalgamated
company

MERGERS
When we use the term "merger", we are referring to the merging of two companies
where one new company will continue to exist . Merger is a tool used by companies
for the purpose of expanding their operations often aiming at an increase of their
long term profitability. It is a combination of two or more business enterprises into a
single enterprise
Mergers can be of three types; namely:

a) Horizontal Mergers
b) Vertical Mergers:
c) Conglomerates merger



• Horizontal Mergers
A horizontal merger is when two companies competing in the same market
merge or join together. Two firms are merged across similar products or
services. Horizontal mergers are often used as a way for a company to
increase its market share by merging with a competing
company. For example, the merger between Exxon and Mobil will allow
both companies a larger share of the oil and gas market.

• Vertical mergers
A merger between two companies producing different goods or services for
one specific finished product. By directly merging with suppliers, a company
can decrease reliance and increase profitability Two firms are merged along
the value-chain, such as a manufacturer merging with a supplier.
For example, Merck, a large manufacturer of pharmaceuticals, merged with
Medco, a large distributor of pharmaceuticals, in order to gain an advantage
in distributing its products.
• Conglomerate:
Two firms in completely different industries merge, such as a gas pipeline
company merging with a high technology company. Conglomerates are
usually used as a way to smooth out wide fluctuations in earnings and provide
more consistency in long-term growth This type of merger involves mergers
of corporates in unrelated lines of businesses activity
For example, General Electric (GE) has diversified its businesses allowing GE
to get into new areas like financial services and television broadcasting
In which two activities are involved :-
Product extension mergers
Market extension mergers
• Every
• Demerger
Demerger or break up of companies is an option that could proved just as
profitable as engaging in a mergers .The spitting of a business unit from its parent
can produced many benefits as well as allow shareholders to get more accurate
financial information separating a business unit from its parent company could
reduce the internal competition that occurs for company funds. . The demerger of
the Reliance group is by far the biggest corporate restructure story in the private
sector.

• Reverse merger
Reverse merger is an alternative method for private companies to become public,
without going through the long and convoluted process of traditional Initial Public
Offering. In a reverse merger, a private company acquires a public entity by owning
the majority shares of the public entity .The private company takes on the
corporate structure of the public entity, with its own company name. Reverse
mergers allow a private company to become public without raising capital, which
considerably simplifies the process.



• Takeover/Acquisition

An acquisition, also known as a takeover, is the buying of one company (the ‘target’)
by another. An acquisition may be friendly or hostile. In the former case, the
companies cooperate in negotiations; in the latter case, the takeover target is
unwilling to be bought or the target's board has no prior knowledge of the offer.
Acquisition usually refers to a purchase of a smaller firm by a larger one. The objective
is to consolidate and acquire large share of the market.

Types of Takeover:
a) Friendly or Negotiated Takeover: Friendly takeover means takeover of one
company by change in its management & control through negotiations between
the existing promoters and prospective investor in a friendly manner. Thus it is
also called Negotiated Takeover. This kind of takeover is resorted to further some
common objectives of both the parties.

b) Bail Out Takeover: Takeover of a financially sick company by a financially rich
company as per the provisions of Sick Industrial Companies, to bail out the former
from losses.

c) Hostile takeover: Hostile takeover is a takeover where one company unilaterally
pursues the acquisition of shares of another company without being into the
knowledge of that other company. The most dominant purpose which has forced most
of the companies to resort to this kind of takeover is increase in market share
• Motives behind M&A:-

These motives are considered to add shareholder value:
• Economies of scale: This refers to the fact that the combined company can often
reduce duplicate departments or operations, lowering the costs of the company
relative to the same revenue stream, thus increasing profit.

• Increased revenue/ Market Share: This motive assumes that the company will be
absorbing a major competitor and thus increase its power to set prices.

• Cross selling: For example, a bank buying a stock broker could then sell its banking
products to the stock broker's customers, while the broker can sign up the bank's
customers for brokerage accounts.

• Synergy: Better use of complementary resources.

• Taxes: A profitable company can buy a loss maker to use the target's loss as their
advantage by reducing their tax liability.

• Diversification: While this may hedge a company against a downturn in an individual
industry it fails to deliver value, since it is possible for individual shareholders to achieve
the same hedge by diversifying their portfolios at a much lower cost than those
associated with a merger.
• Advantages of M&A
Revenue enhancement
Cost reductions
Lower taxes
A lower cost of capital
• Drawbacks 0f M&A
Costs of mergers and acquisitions
Legal expenses
Short-term opportunity cost
Diversification
Lack of research
Size Issues


Restructuring Methods
• Sell-Offs
A sell-off, also known as a divestiture, is the outright sale of a company
subsidiary. Normally, sell-offs are done because the subsidiary doesn't fit
into the parent company's core strategy. The market may beunder valuing
the combined businesses due to a lack of synergy between the parent and
subsidiary. As a result, management and the board decide that the
subsidiary is better off under different ownership.
• Equity Carve-outs
More and more companies are using equity carve-outs to boost
shareholder value. A parent firm makes a subsidiary public through an
initial public offering of shares, amounting to a partial sell-off. A new
publicly-listed company is created, but the parent keeps a controlling stake
in the newly traded subsidiary.




Spinoffs

A spinoff occurs when a subsidiary becomes an independent entity. The parent firm
distributes shares of the subsidiary to its shareholders through a stock dividend. Since
this transaction is a dividend distribution, no cash is generated. Thus, spinoffs are
unlikely to be used when a firm needs to finance growth or deals. Like the carve-out,
the subsidiary becomes a separate legal entity with a distinct management and board.
Like carve-outs, spinoffs are usually about separating a healthy operation. In most
cases, spinoffs unlock hidden shareholder value. For the parent company, it sharpens
management focus. For the spinoff company, management doesn't have to compete
for the parent's and capital. Once they are set free, managers can explore new
opportunities.

Tracking Stock

• A tracking stock is a special type of stock issued by a publicly held company to
track the value of one segment of that company. The stock allows the different
segments of the company to be valued differently by investors. Let's say a slow-
growth company trading at a low price-earnings ratio (P/E ratio) happens to have a
fast growing business unit. The company might issue a tracking stock so the market
can value the new business separately from the old one and at a significantly
higher P/E rating. The company retains control over the subsidiary; the two
businesses can continue to enjoy synergies and share marketing, administrative
support functions, a headquarters and so on. Finally, and most importantly, if the
tracking stock climbs in value, the parent company can use the tracking stock it
owns to make acquisitions.

Difference between Mergers and Acquisitions
• Merger is considered to be a
process when two or more
companies come together to
expand their business operations
• Ina merger two companies of
same size combine to increase
their strength and financial gains
along with breaking the trade
barriers
• In case of a merger there is a
friendly association where both
the partners hold the same
percentage of ownership and
equal profit share
• When one company takes over the
other and rules all its business
operations, it is known as
acquisitions
• Another difference is, in an
acquisition usually two companies of
different sizes come together to
combat the challenges of downturn
• A deal in case of an acquisition is
often done in an unfriendly manner,
it is more or less a forceful or a
helpless association where the
powerful company either swallows
the operation or a company in loss is
forced to sell its entity