CORPORATE ADVISORY SERVICES

CORPORATE RESTRUCTURING

Revising the organizational structure Rearrangement and negotiation of organizational

functions Reverse of a merger Objective of restructuring is to increase value

CORPORATE RESTRUCTURING - REASONS

Need to meet global competition Better align interests of managers and shareholders Mainly done to reverse conglomerate mergers Make the firm more attractive to investors

TYPES OF CORPORATE RESTRUCTURING

Spin-Offs:

A company owns or creates a subsidiary whose shares are distributed on a pro rata basis to the shareholders of the parent company.

Parent company usually retains a small percentage of ownership of subsidiary – 10 to 20%.

Often Spin-Offs follow an IPO sale of under 20% of shares.

Subsidiary becomes a public firm.

Cash flow is not generated from a spin-off.

TYPES OF CORPORATE RESTRUCTURING

Equity Carve-outs

It is the IPO of some part of the common stock of the subsidiary.

Seasoned equity offer of parent company.

Cash flow is generated but differs in that this initiates public trading of subsidiary.

Equity claim is on subsidiary’s assets and not parent’s assets

TYPES OF CORPORATE RESTRUCTURING

• Split-ups

When a firm splits into two or more entities – usually accomplished with carve-outs and spin-offs of individual parts of the firm.

TYPES OF CORPORATE RESTRUCTURING

• Divestitures

Sale of segment of a company to a third party for cash and / or securities.

INTENTION OF DIVESTITURES

Dismantling conglomerates Abandoning core business Changing strategies Adding value by selling into a better segment Large additional investment required Repeat past successes Discard unwanted business from prior acquisitions Finance prior acquisitions done before LBO Ward off takeover Meeting Government requirements

LBOs

LBO is purchase of a company by a small group of investors, financed heavily with debt

Usually resulting in becoming a private company LBO involves large ownership by managers Usually to turn firm around LBO interim financing is usually bank debt Permanent financing

Bank debt (Senior, Secured) High-yield bonds (Junk bonds)

HOSTILE MERGERS

• Bidder Unwanted• Targeted repurchase

Target firm agrees to buy back some shares from bidder (usually at a premium)

• Self-tenderFirm makes offer to buy back its own shares

(limit) while excluding targeted shareholders• Poison Pills

Calls with contingent strike pricesIssued to shareholders

• Legislation

HOSTILE MERGER JARGONS

Golden Parachutes Crown Jewels White Knights Lock Ups Shark Repellents Green Mailing