CORPORATE RESTRUCTURING

Meaning: “To give a new structure, to rebuild or to rearrange”

CR

Comprehensive process

Consolidates its business operations Looking for new avenues

Achievement of Objectives

Justice Chandrachud : Corporate restructuring is one of the means that

can be employed to meet the challenges which confront business

Pioneers of CR Process in India

R.P. GOENKA
M.R.CHABRIA
SUDERSHAN BIRLA
SRICHAND HINDUJA
VIJAYA MALLYA
MURUGAPPA FAMILY
NEED: DHIRUBHAI AMBANI
DILIP SANGHVI
Examples

1. Assume ABC ltd has surplus funds but it is not able to consider viable
projects worth investing. Whereas XYZ ltd has identified viable projects but
has no money to fund the cost of the project.
Hence, merger of both the companies could be a viable option which gives
more strategic benefits to both the companies.

2. Harish is a CA in practice. His income will not be regular as would be of a

CA in employment. Harish has a girlfriend, Geeta who happens to be a CA
in employment. Assume Harish married Geeta. This marriage helps both to
grow and complement each other without bothering about regularity of
cash inflows.

3. Growth through Diversification

NEED:

1. Operational synergy and efficient allocation of managerial capabilities

and infrastructure.

2. Focus on core strengths.

3. Economies of scale by expansion /diversification.

4. Revival and rehabilitation of a sick unit by adjusting loses of the sick unit
with profits of a healthy unit.

5. Acquiring constant supply of raw material

6. Access to scientific research/technological developments.

7. Capital restructuring by appropriate mix of loan and equity funds to

reduce the cost of servicing and improve return on capital employed.

8. Improve corporate performance to bring it at par with competitors by

adopting the radical changes brought out by IT

KINDS /FORMS OF RESTRUCTURING

• FINANCIAL RESTRUCTURING
Mergers, acquisitions, joint ventures, strategic alliances etc.

• TECHNOLOGICAL RESTRUCTURING
Alliances with other companies to exploit technological expertise.
 • MARKET RESTRUCTURING
Decisions regarding product market segments based on core
competencies.

• ORGANISATIONAL RESTRUCTURING

CHOICE OF RESTRUCTURING

1. EXPANSION
Mergers and acquisitions
Takeovers/tender offers
Joint ventures/strategic alliances

2. REFOCUSING
Divestitures/demergers
Spin offs
Split ups
Sell offs
Equity carve outs

3. CORPORATE CONTROL
Buy back

4. CHANGE IN OWNERSHIP STRUCTURE

Exchange offers
Delisting
LBOs/MBOs

• Mergers and acquisitions

• Tender offers: Generally a company seeking a controlling interest in

another company, wants to control the other by acquiring
controlling stake

• Joint ventures: Companies usually enter into an agreement to

provide certain resources towards the achievement of a particular
business goal for a limited duration.

• Divestitures: Reduction of the asset structure or reorganization of

the business portfolio.

• Demerger: In a demerger, the demerged company sells and transfers

one or more of its undertaking to the resulting company for an
agreed consideration. The resulting company issues its shares at the
 agreed exchange ratio to the shareholders of the demerged
company.

• Slump sale: A company sells/ disposes of the whole or substantially

the whole of its undertaking for a lump sum pre determined
consideration.

• Spin offs: A form of divestitures that creates a new legal entity with
its shares distributed on a pro-rota basis among the existing
shareholders of the parent company. Thus, existing stockholders
have the same proportion of ownership in the new entity as in the
original firm. An important feature of spin offs is that no cash is
received by the original parent company.

• Split ups: Sale of a portion of the firm to a third party . Cash or

equivalent is received by the divesting firm.

• Equity carve out: Sale of a portion of the firm via equity offers to
outsiders. A new legal entity is created with the constitution of a new
controlling group.

• Buy back:

• Exchange offers:Exchange of debt or preferred stock for equity in

order to create leverage.

• Delisting: Delisting of shares from the stock exchanges.

• LBOs : Acquisition of a company through huge debt funds.

• MBOs: Management buying out the company

MOTIVES OF MERGERS AND ACQUISITIONS

Exogenous Factors
1. Industrial and regulatory policies
2. Competitive impact
3. Pre emptive motive
Endogenic Factors
1. Growth
2. Portfolio strategy
3. Scale economies and synergy
4. Corporate control/ defensive strategy
5. Tax shield
 6. Long term financial consideration

CASE STUDY

The Transport Corporation of India(TCI) has diversified into other

businesses which was supposes to be an extension of their core business.
Initially, TCI was into cargo movers. Later on they diversified into transport
services, car rentals, forex services etc. Soon the company felt that the
over diversified portfolio was recognized to have no synergy between
them. …………………………………………………………….. and thus the
company in April 1998 undertook a restructuring exercise by reorganizing
the whole business into Gati ltd and Wheels India ltd.
You are required to identify which restructuring strategy would have best
suited to TCI ?

Assignment

1. What are the important strategies available to the companies for

growth?
2. Identify various corporates which have gone through restructuring
process fitting into the different forms of corporate restructuring
discussed in the class?
3. Post liberalization, Indian corporate sector has undertaken business
restructuring exercise in a massive scale. In the exercise of business
restructuring, following types of patterns have emerged.

• Many companies have sold some of their businesses and

acquired other businesses. For example, TISCO has sold its
cement division to LAFARGE and acquired bearing division of
Metal Box.
• Many of the businesses have been transferred from one
company to another company within the same group. For
example, Birla group.

There are many such examples because business restructuring has

become order of the day. What strategic lessons do you draw from the new
strategic repositioning of the companies concerned?