Restructuring and M & A

RESTRUCTURING AND M & A
Corporate restructuring dilemma…

2
 Coca Cola (world’s biggest brand) and P&G (world’s

first product brand)
 Float a JV in 2000
 Aimed at combining juice and chips business
 Targeting growth and long term value

3
 The JV stood at USD 4 billion
 Named Simply Juice
 Coca Cola would make new health oriented beverages with P&G
expertise
 P&G had large resources in R&D that had expertise in health

beverages
 P&G agreed to Punica, Sunny Delight and Pringles

4
 Intention was to market snacks with juice globally
 Coca Cola agreed to transfer its juice brands Minute

Maid, Fruitopia, Cappy, Capo, Sonfil, and Qoo
 P&G was to benefit from Coke’s powerful global

distribution network
 JV was in form of LLC with a separate BODs

representing the two companies
5
 The JV would involve 15 manufacturing facilities and 6000

employees, 40 brand
 USD 4 billion was expected in revenue
 JV would cater to USD 50 billion global snacks category and

USD 34 billion global juice and juice drink category
 Expended distribution will take revenue around USD 150 billion
 Would create synergy to brands like Pringles and Sunny delight

6
 Cost synergies through reduction in manufacturing,

distribution, administrative expense and economies from
combined capacities
 Both companies were 50% owner of the JV
 JV was expected to generate huge synergy seems to

skewed towards P&G
 Coke was stronger of two as it developed control on

production of concentrated syrup from Atlanta
7
 Mixing, bottling, canning and distribution were built on

franchise model franchised to independent business
globally
 Has strong, efficient, and effective global distribution

network
 Even today one of the most powerful and pervasive

network of supply chain across the countries
 Coke took a big risk to create health and wellness product

8
 Coke would share 50% of the profits from the fast growing
business segment with a rival that could not compete in its
core business
 The advantage more towards P&G and stood winner
 Coca Cola was more on loosing end
 Market was abuzz with the fact that Coca Cola should have
bought the health soft drink technologies it required rather than
going for a alliance with a weak rival in the core business
9
 The share price of Coke fell by 6% and, while that for P&G rose
by 2%
 Both the companies realized the mistake specially Coke and

called off the deal in 2001
 The deal was not able to take off due to miscalculated alliance
objective and synergy gain
 ??? Why Coke went for alliance
 It could have buyout rather than an alliance

Need for corporate restructuring…
10
 Change in government policy and regulations
 Previous strategic decisions gone wrong
 Orderly redirection of firm’s activities and processes
 Utilization of surplus cash
 Need of efficient allocation of existing resources
 Procurement of efficient assets

11
 Realigning the interdependence of various business lines,

asset portfolio
 Scope exists for improved efficiency and cost reduction
 Scope exist for efficient and improved managerial skills
 Reorganizing ownership within promoter’s group
 Modernization of its plant and equipment

12
 Upgradation of technology infrastructure and R&D facility
 Developing competitive edge and core competencies
 Remodeling its human relations ethics
 Revamping its marketing philosophy
 Exploit emerging opportunities
 Combat impending threats

Prerequisite to corporate restructuring
13
SWOT analysis
L&T restructuring exercise….
14
https://www.reuters.com/article/idINIndia-54360020110124
15
 In a move aimed at boosting growth, engineering and construction major

Larsen & Toubro (L&T) has initiated a restructuring process
 It will result in nine business verticals being empowered as independent

companies, in addition to five existing subsidiaries
 L&T has a sprawling and complex web of 64 businesses, ranging from

power to roads and aerospace to switchgear
 L&T's power, hydrocarbon, machinery & product, switchgear, heavy

engineering, infrastructure, building & factories, metals & minerals and
electrical businesses will make up the nine independent companies (ICs)
https://www.businesstoday.in/latest/corporate/story/landt-kicks-off-mega-restructuring-process-20076-2011-01-25
16
 "We see major growth opportunities in all the sectors we are

present in.
 We are trying to be organized for this to maintain our growth in

future," Nayak said
 Each of these nine ICs will have a full-fledged Chairman and

CEO as head of the organization and manage its own profit and
loss account.
 Each will even have its own Board of Directors with at least
three independent directors
17
 The restructuring will help the businesses make faster decisions

and make the process autonomous
 "The units will grow as fast as they are capable of with

entrepreneurial skills.”
 The performance of these companies will also improve due to

focus, empowerment, transparency, stronger leadership and
improved competitiveness of each business
 It will create a stronger leadership pipeline along with

enhancing stakeholder value
Corporate restructuring Bowmen and Singh
18
Broadly can be categorized
 Organization restructuring
 Financial restructuring
 Portfolio restructuring
Corporate restructuring
19
Organization restructuring
 Span of control
 Hierarchy
 Firm division
 It should create wealth for the organization and result in

improved financial performance
20
Organization restructuring models
 Structural redesign
 Layoffs
 Redesign
 Communication
 Inter-organizational relationships
 Culture
 Effectiveness vs efficiency orientation
21
Financial restructuring
 Securing asset based loans (accounts receivables,

inventory and equipment)
 Securing mezzanine and subordinated debt

financing
 Securing institutional private placements of equity

22
Financial restructuring
 Securing ESOPs
 Entering into strategic alliance
 Entering into M&A of a target firm
 Entering into LBO transaction

23
Portfolio restructuring
 Divestment or divestiture
 Alliances and joint ventures
 Mergers and acquisitions

24
Divestment or divestiture
 Equity carve out
 Spin-off/Demerger
 Asset sell-off
25
Motherson demerger Change in structure after demerger
Before demerger After demerger
https://staging.motherson.com/storage/Corporate%20Announcements/FY2020-21/Investor-presentation-&-FAQ-for-reorganisation.pdf
26
Joint venture and strategic alliance
 JV is a business agreement between two

parties, where they agree to form a new entity
 JV and SA do not connote the same meaning,

although used interchangeably on several
occasions
27
Mergers and Acquisitions
 Horizontal merger
 Vertical merger
 Conglomerate merger
28
Mergers and Acquisitions as an tool for inorganic

growth
Expand organically by investing into its core assets
 g = ROCt – ROCt-1/ ROCt-1

Expand inorganically by buying growth or entering into
alliances for a partnership for growth
 Growth from new investments = reinvestments

rate x return on capital invested
Corporate growth
29
Organic vs inorganic
https://www.wallstreetmojo.com/organic-growth/ https://www.civilserviceindia.com/subject/Management/notes/growth-strategies.html
30
Thank You

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RESTRUCTURING AND M & A

Corporate restructuring dilemma…

 Coca Cola (world’s biggest brand) and P&G (world’s

 Aimed at combining juice and chips business

 Targeting growth and long term value

 The JV stood at USD 4 billion

 Named Simply Juice

 P&G had large resources in R&D that had expertise in health

 P&G agreed to Punica, Sunny Delight and Pringles

 Intention was to market snacks with juice globally

 Coca Cola agreed to transfer its juice brands Minute

 P&G was to benefit from Coke’s powerful global

 JV was in form of LLC with a separate BODs

 The JV would involve 15 manufacturing facilities and 6000

 USD 4 billion was expected in revenue

 JV would cater to USD 50 billion global snacks category and

 Expended distribution will take revenue around USD 150 billion

 Would create synergy to brands like Pringles and Sunny delight

 Cost synergies through reduction in manufacturing,

 Both companies were 50% owner of the JV

 JV was expected to generate huge synergy seems to

 Coke was stronger of two as it developed control on

 Mixing, bottling, canning and distribution were built on

 Has strong, efficient, and effective global distribution

 Even today one of the most powerful and pervasive

 Coke took a big risk to create health and wellness product

 The advantage more towards P&G and stood winner

 Coca Cola was more on loosing end

 Both the companies realized the mistake specially Coke and

 ??? Why Coke went for alliance

 It could have buyout rather than an alliance

 Change in government policy and regulations

 Previous strategic decisions gone wrong

 Orderly redirection of firm’s activities and processes

 Utilization of surplus cash

 Need of efficient allocation of existing resources

 Procurement of efficient assets

 Realigning the interdependence of various business lines,

 Scope exists for improved efficiency and cost reduction

 Scope exist for efficient and improved managerial skills

 Reorganizing ownership within promoter’s group

 Modernization of its plant and equipment

 Upgradation of technology infrastructure and R&D facility

 Developing competitive edge and core competencies

 Remodeling its human relations ethics

 Revamping its marketing philosophy

 Exploit emerging opportunities

 Combat impending threats

 In a move aimed at boosting growth, engineering and construction major

 It will result in nine business verticals being empowered as independent

 L&T has a sprawling and complex web of 64 businesses, ranging from

 L&T's power, hydrocarbon, machinery & product, switchgear, heavy

 "We see major growth opportunities in all the sectors we are

 We are trying to be organized for this to maintain our growth in

 Each of these nine ICs will have a full-fledged Chairman and

 The restructuring will help the businesses make faster decisions

 "The units will grow as fast as they are capable of with

 The performance of these companies will also improve due to

 It will create a stronger leadership pipeline along with

Broadly can be categorized

 It should create wealth for the organization and result in

Organization restructuring models