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Corporate Restructuring

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Why Corporate Restructuring?

Increased Competition

Advent of a new and more ecient technology

Emergence of new markets

Emergence of new classes of consumersDemographic changes

Business cycles

 

‘Wise organizations undertake changes to increase

their cutting edge over the competitors and enhance

their leadership position.’ 

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Cont..

Companies are dramatically restructuring their:• Assets

• perations

• !elationship with stakeholders

Corporate restructuring facilitates organi"ationsto re#esta$lish their competitive advantage

and respond more %uickly and e&ectively tonew opportunities and une'pectedchallenges.

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Why Corporate

Restructuring?(owever) not all the changes that acompany undergoes would %ualify to$e termed as *corporaterestructuring+.

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Corporate Restructuring

  Defnition

Any change in the business capacity orportolio that is carried out by aninorganic route

Or

  Any change in the capital structure o acompany that is not a part o its ordinarycourse o business

Or

Any change in the ownership o or controlover the management o the company or acombination o any two or all o the above

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Organic Vs !norganic "rowth• Organic "rowth is the rate of a $usiness e'pansion

through a company+s own $usiness activity) while

!norganic "rowth means that the company has grown $y

merger) ac%uisitions or takeovers.

• ,hen a company with help of its ecient management

enhances its growth rate it is referred to as organic

growth which is also known as Internal -rowth whereas

inorganic growth is attained when a company ac%uires a

technology developing company in order to enhance its

competitive advantage and growth rate and is also known

as E'ternal -rowth.

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Cont..• !norganic growth is the rate of growth

of $usiness) sales e'pansion etc. $y increasingoutput and $usiness reach $y ac%uiring new$usinesses $y way of mergers) ac%uisitions andtakeovers.

•  /his kind of growth also takes place due togovernment directives) leading to enhancementof $usiness in some identi0ed prioritysector1area.

•  /he inorganic growth rate also factors in theimpact of foreign e'change movements orperformance of other economies.

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Corporate Restructuring!  #a$ Any change in the business capacity or

portolio carried out by inorganic route

 /ata 2otors launched 3umo and later) Indica# leading to

an e'pansion of its $usiness portfolio. (owever) these

products were launched from /ata 2otor+s own

manufacturing capacity in through an organic route.

(ence) it would not %ualify as *corporate restructuring+

 /ata 2otors+ ac%uisition of 4aguar 5and !over from 6ord)

through 4aguar 5and !over 5imited is *corporate

restructuring+

-rasim+s ac%uisition of 5arsen 7 /ou$ro+s 857/9 cement

division through ltra/ech Cement 5imited is an e'ample

of *corporate restructuring+

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Cont..

 #b$ Change in the business portolio couldalso be in the nature o reduction obusiness handled by a company

In the case of -rasim and 57/) the demerger

of 57/+s cement $usiness into ltra/ech

Cement 5imited was reduction of its $usinessportfolio and thus) amounted to *corporate

restructuring+ of 57/.

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Cont%!! Any change in the capital structure o a company

that is not in the ordinary course o its business

  Capital structure refers to debt equity ratio, i.e. the proportion of debt and equity in the total capitalof a company. &his capital structure is never static and changes almost daily

,ithin a targeted or planned range if the de$t1e%uity ratio

;uctuates) such changes in the capital structure do not

amount to *capital restructuring+.

Borrowing of a signi0cant amount of term loan or an issue of

0ve year non#converti$le de$enture do not %ualify to $e called

*corporate restructuring+ .

An initial pu$lic issue) or a follow#on pu$lic issue or $uy#$ack

of e%uity shares would permanently alter the capital structure

of a company) and thus) would amount to *corporate

restructuring+.

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Cont!!! Any change in the ownership o a company or

control over its management

2erger of two or more companies $elonging todi&erent promoters

Demerger of a company into two or more with controlof the resulting company passing on to other

promoters Ac%uisition of a company

3ell#o& of a company or its su$stantial assets

Delisting of a company

 All these would qualify to be called exercises in‘corporate restructuring’. 

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'a(or )orms o Corporate Restructuring

'erger Consolidation

Ac*uisition

Divestiture

Demerger #spin o+,split up,split o+$

Carve Out

 -oint Venture

Reduction o Capital

.uy/bac0 o 1ecurities

Delisting o 1ecurities,Company

Corporate Debt Restructuring

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 /(A