[go: up one dir, main page]
Scribd
Upload
351 views18 pages

Mergers, Acquisitions and Corporate Restructuring: Prasad G. Godbole

Uploaded by

Manan Suchak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
351 views18 pages

Mergers, Acquisitions and Corporate Restructuring: Prasad G. Godbole

Uploaded by

Manan Suchak
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 18

Mergers,

Acquisitions And
Corporate
Restructuring

Prasad G. Godbole

Copyright © 2009 Vikas


PrasadPublishing House
G. Godbole. Pvt. Ltd.
All rights All rights reserved.
reserved.
Section 1: CONCEPTS, STRATEGIES AND TACTICS

Copyright © 2009 Vikas


PrasadPublishing House
G. Godbole. Pvt. Ltd.
All rights All rights reserved.
reserved.
Chapter 1
Corporate Restructuring

Copyright © 2009 Vikas


PrasadPublishing House
G. Godbole. Pvt. Ltd.
All rights All rights reserved.
reserved.
CHAPTER 1
Corporate Restructuring

Definition

Corporate restructuring can be defined as any change in the


business capacity or portfolio that is carried out by an inorganic
route
or

Any change in the capital structure of a company that is not a


part of its ordinary course of business
or

Any change in the ownership of or control over the management


of the company or a combination of any two or all of the above
CHAPTER 1
Organic vs. inorganic route
of growth

• When you start a small business, you must focus on


growing your customer base, reinvesting profits in new
assets for greater income, and improving productivity to
increase your bottom line. All of these efforts are
examples of organic growth.
• You can grow your company through inorganic growth
by merging with another company or buying another
company. This can give you a larger customer base and
new channels of distribution that can result in
accelerated growth.
CHAPTER 1
Corporate Restructuring
I. (a) Any change in the business capacity or portfolio carried out by
inorganic route

 Tata Motors launched Sumo and later, Indica- leading to an expansion of its
business portfolio. However, these products were launched from Tata Motor’s
own manufacturing capacity in through an organic route. Hence, it would not
qualify as ‘corporate restructuring’
 Tata Motors’ acquisition of Jaguar Land Rover from Ford, through Jaguar Land
Rover Limited is ‘corporate restructuring’
 Grasim’s acquisition of Larsen & Toubro’s (L&T) cement division through
UltraTech Cement Limited is an example of ‘corporate restructuring’

(b) Change in the business portfolio could also be in the


nature of reduction of business handled by a company

 In the case of Grasim and L&T, the demerger of L&T’s cement business into
UltraTech Cement Limited was reduction of its business portfolio and thus,
amounted to ‘corporate restructuring’ of L&T.
CHAPTER 1
Corporate Restructuring

II. Any change in the capital structure of a company that is not in


the ordinary course of its business

 Capital structure refers to debt equity ratio, i.e. the proportion of debt and
equity in the total capital of a company.

 This capital structure is never static and changes almost daily.

 Within a targeted or planned range if the debt/equity ratio fluctuates, such


changes in the capital structure do not amount to ‘capital restructuring’.

 Borrowing of a significant amount of term loan or an issue of five year non-


convertible debenture do not qualify to be called ‘corporate restructuring’ .

 An initial public issue, or a follow-on public issue or buy-back of equity


shares would permanently alter the capital structure of a company, and
thus, would amount to ‘corporate restructuring’.
CHAPTER 1
Corporate Restructuring

III. Any change in the ownership of a company or control over its


management

a) Merger of two or more companies belonging to different promoters


b) Demerger of a company into two or more with control of the resulting
company passing on to other promoters
c) Acquisition of a company
d) Sell-off of a company or its substantial assets
e) Delisting of a company

 All these would qualify to be called exercises in ‘corporate


restructuring’.
CHAPTER 1
Why Corporate Restructuring?

 Increased Competition
 Advent of a new and more efficient
technology
 Emergence of new markets
 Emergence of new classes of consumers
 Demographic changes
 Business cycles

‘Wise organizations undertake changes


to increase their cutting edge over the
competitors and enhance their
leadership position.’
CHAPTER 1
The Activities or Changes which are
not termed ‘Corporate Restructuring’

I. Initial creation of a corporate structure


 Its various examples are:
– Incorporation of a limited company
– Conversion of a proprietary concern into a company
– Conversion of a partnership firm into a company
– Conversion of a private company into a public company

II. Change in the internal command structure or hierarchy


 The command structure of an organization or its hierarchy simply means the reporting
relationships among the employees, managers, top management and their various
functions.
– Functional organization
– Divisional organization
– Matrix organization
Continued…
CHAPTER 1
The Activities or Changes Which are
Not Termed ‘Corporate Restructuring’

 With businesses having become more complex along with the


acceptance of newer concepts of organization building such as tutorship,
mentorship, etc., the hierarchies have stopped strictly falling into one of
the three types mentioned in the earlier slide.
 Any migration of an organization from functional to divisional or to matrix
type or to any new or hybrid type or vice-versa would not be a case of ‘
corporate restructuring’.

III. Change in the business process


 This is also called ‘reengineering’. ‘Reengineering, properly, is the
fundamental rethinking and redesign of business processes to achieve
dramatic improvement in critical, contemporary measures of
performance, such as cost, quality, service and speed.’
 It refers to the radical redesigning of business processes and not to the
ownership and control or to the capital structure of the organization.
 Reengineering is also outside the ambit of ‘corporate restructuring’.
CHAPTER 1
The Activities or Changes which are
not termed ‘Corporate Restructuring’

IV. Downsizing
 It is another form of organizational change in which the business
organization substantially cuts down on its manpower, recurring cost
and/or capital expenditure, either as an objective itself or as a result
of reengineering.
 Downsizing is also outside the purview of ‘corporate
restructuring’.

V. Other activities
 Activities such as outsourcing, enterprise resource planning, total
quality management, franchising alliances, networking alliances and
licensing do not classify as corporate restructuring activities.
CHAPTER 1
Barriers of Corporate Restructuring

• 1. Work assurance
• 2. Retention of best management
• 3. Delay in deal finalization
• 4. Executive stress
• 5. Workers woes
• 6. Cultural mismatch
• 7. Inability to create value
CHAPTER 1
Reasons/Motives for Corporate
Restructuring

• 1. Motives Behind Expansion


• 2. Motives Behind Corporate Control
• 3. Motives Behind Contraction
• 4. Motives Behind Change in ownership
structure
CHAPTER 1
1. Motives Behind Expansion

• 1. Growth
• 2.Technology
• 3.Product advantage and product differentiation
• 4.Government policy
• 5.Exchange rates
• 6. Political/Economic stability
• 7. Differential Labor costs, productivity
• 8. Diversification
CHAPTER 1
2. Motives Behind Corporate Control

• 1. Improving Leverage ratio


• 2. Utilization of surplus cash
• 3. Enhancement of voting power
• 4. Preventing undervaluation
• 5. Anti takeover defense
CHAPTER 1
3. Motives Behind Contraction

• 1. Improving Performance
• 2. Booming independence
• 3. Effort of unlearn
• 4. Strategic adjustment
• 5. Increasing value
CHAPTER 1
4. Motives Behind Change in ownership
structure

• 1. Skill for handling Leverage


• 2. Alteration in the control structure
• 3. Providing fairness to minority
shareholders
• 4. Changing the nature of firm

You might also like