CORPORATE RESTRUCTURING

“Businesses will integrate themselves into the world economy through mergers & alliances.“ - Peter Drucker in his

book “Managing for the future”

CONCEPT OF RESTRUCTURING Restructuring is the latest buzzword in corporate circles. Restructuring is the corporate management term for the act of

partially dismantling or otherwise reorganizing a company for the purpose of making it more efficient and therefore more profitable. It generally involves selling off portions of the company and making severe staff reductions.

Corporate Restructuring is not a new phenomenon in India. It has, however, become very profound after 1991.

TYPES OF CORPORATE RESTRUCTURING Corporate Restructuring

Portfolio Restructuring

Organisational Restructuring

Functional Restructuring

PORTFOLIO RESTRUCTURING

Portfolio Restructuring refers to change in the portfolio of businesses of the company.

If a firm is reshuffling its assets by selling some of its existing production facilities or acquiring some new facilities to produce the feeding raw–material for the main product, it is called Portfolio Restructuring.

It involves changes in the configuration of business in which a firm is operating through acquisitions. It is for making additions to or disposals from companies' businesses e.g. through acquisitions or spin-offs. Portfolio restructuring also has a high probability of improving performance, although the performance gain is likely to be much more modest than with financial restructuring.

ORGANIZATIONAL RESTRUCTURING

Organizational Restructuring has been very common. Decentralization, delayering or flattering and re-grouping of

activities are important organizational restructuring measures. Increase or decrease in activity levels, expansion or contraction of

portfolio or functions etc. may cause modification of organizational structure.

Change in Corporate Strategy such as portfolio strategy, sometimes call for organizational restructuring as often structure follows strategy.

FUNCTIONAL RESTRUCTURINGThe All India Management Association (AMA) survey reveals

that restructuring of corporate functions (marketing, operations, personnel and finance) has been very significant both in the public and private sectors.

MARKETING FUNCTION – The survey results show that the revamping of the marketing function meant the creating of a product management team, building up sales force, restructuring distribution system and creating marketing research cell.

FINANCIAL FUNCTION - As far as the modifying of the financial function was concerned the emphasis was on improving the financial reporting system.

FUNCTIONAL RESTRUCTURINGOPERATION FUNCTION – Restructuring of operations has

been very significant. Re-engineering has become very popular. Technological up gradation has been important concern. The acceptance of total quality management and the requirements for ISO 9000 certification etc. have had significant influence on operational restructuring.

PERSONNEL FUNCTION - Personnel Function was found to receive high priority in restructuring. The emphasis of both public and private sectors

FORMS OF CORPORATE RESTRUCTURING

Mergers and AcquisitionsTender Offers Joint Ventures

Spin – Offs Split-Offs Split-Ups

DivestituresEquity Carve-outs

EXPANSION SELL OFFS

FORMS OF CORPORATE RESTRUCTURING

Premium Buy-backsStandstill AgreementsAntitakeover AmendmentsProxy Contests

Exchange OffersShare RepurchasesLeveraged Buy-outs

CORPORATE CONTROL CHANGE IN OWNERSHIP STRUCTURE

MERGERS

Merger means combining of two commercial companies into one.

- Oxford Dictionary Merger is a fusion between two or more enterprises, whereby the

identity of two or more is lost and the result is a single enterprise. Merger is an arrangement for bringing the assets of two firms

under control of one.

MERGERS

When two or more companies agree to combine their operations, where one company survives and other loses its existence, a merger takes place.

The surviving company acquires all the assets and liabilities of the merged company.

The company that survives is generally the buyer and it either retains its identity or the merged company is provided with a new name.

A basic feature of merger is that one company takes the ownership of another company and combine its operations with that of its own operations.

TYPES OF MERGERSHORIZONTAL MERGERVERTICAL MERGERCONGLOMERATE MERGER

STYLE OF MERGERS MOVES

Negotiated Merger Tender offer Hostile Takeover Bid Arranged Merger Reverse Merger

SCHEME OF MERGER/AMALGAMATION

The authorized, issued and subscribed/paid up capital of the transferor/transferee company.

Size of Board of Directors and Participation of Transferee Company’s director’s on the board.

Terms and conditions of the scheme of amalgamation/merger and effective date of amalgamation.

Fixing of a cut-off date from which all assets both movable and immovable of amalgamating company shall be transferred to the amalgamated company.

Deciding the name and accounting year.

SCHEME OF MERGER/AMALGAMATION

Object clause of the memorandum of association of the transferor and transferee companies so as to determine whether the power of amalgamation exits or not..

The scheme must provide protection to the existing employees. Obtaining of approval of shareholders, creditors, financial

institutions/banks Expenses of amalgamation Dividend position and future prospects.

LEGAL & PROCEDURAL ASPECTS OF MERGER Analysis of Proposal by the Companies Determining Exchange Ratio Approval of Board of Directors Approval of Shareholders Consideration of interests of the Creditors Approval of the Court Approval of Reserve Bank of India