0% found this document useful (0 votes)
8 views60 pages

Corporate Restructuring

The document discusses corporate restructuring, defining it as a process of reorganizing an organization's structures to enhance profitability and efficiency. It outlines various restructuring strategies, reasons for restructuring, symptoms indicating the need for it, and obstacles faced during the process. Additionally, it highlights key factors for successful restructuring and provides examples of mergers and acquisitions in the corporate sector.

Uploaded by

onik5224
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
8 views60 pages

Corporate Restructuring

The document discusses corporate restructuring, defining it as a process of reorganizing an organization's structures to enhance profitability and efficiency. It outlines various restructuring strategies, reasons for restructuring, symptoms indicating the need for it, and obstacles faced during the process. Additionally, it highlights key factors for successful restructuring and provides examples of mergers and acquisitions in the corporate sector.

Uploaded by

onik5224
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 60

CORPORATE

RESTRUCTURING
Md Masud Chowdhury
[email protected]
+8801763831073

1
Contents

What is Restructuring?

Restructuring Strategies/ Types

Reasons for Restructuring

Symptoms for Restructuring

Obstacles to Restructuring

Successful Restructuring

Types of Restructuring

2
What is Restructuring?

Restructuring is the process through which an organization radically


changes the contractual relationships that exist among its creditors,
shareholders, employees, and other stakeholders.

It is the corporate management term for the act of reorganizing


the legal,
ownership,
operational,
financial or
other structures of an organization for the purpose
of making it more profitable and efficient.

Strategies of restructuring include


1. Portfolio restructuring
2. Organizational structuring
3. Financial restructuring.

3
WHAT IS RESTRUCTURING?

Restructuring is an on-going process. It is a value tool for an


organization to use in an attempt to maintain their goals and
objectives.

The choice of which strategy to use will depend on the area the
organization has to improve, i.e. profitability, performance, or
operation.

4
Restructuring strategies

 Organizational Restructuring Strategy


In this strategy the terms downsizing, redesign and layoffs are
often used.

Organizational restructuring will normally


a) change the levels of management in the company,
b) effect the span of control or
c) shift product boundaries.
d) There is also a change in production procedures and
compensation associated with this strategy.

Reduction in the work force is the main by-product that


accompanies organizational restructuring and is the reason for
the least positive impact on organizational performance.

5
RESTRUCTURING STRATEGIES

 Financial Restructuring Strategy


This type of restructuring is identified by changes are in the
firm's capital structure.

Changes can include debt for equity swaps, leverage


buyouts (LBOs), or some form of recapitalization.

In a financial restructuring that is in the form of a LBO,


a) there is an immediate influx of free cash flows,
b) organizational efficiency is enhanced and
c) the company refocuses on the core business.
d) Additionally, long-term performance of the organization is
significantly improved after the LBO.

Note that LBOs of divisions have greater improvement in


efficiency than when the entire company is acquired.

6
Restructuring strategies

 Portfolio Restructuring Strategy


Companies involved in acquisitions, divestitures
(ডাইভাসটিচার) , or spin-offs are mainly using a portfolio
restructuring strategy.

This type of strategy includes

a) selling off those business units that are drawing down


operations or

b) spinning off business units to raise more capital.

Portfolio restructuring has the best results when the firm uses the spin-
off strategy and count on subsequent mergers rather than sell-offs.

7
Reasons for Restructuring

The three primary reasons for restructuring:

1. To address poor financial performance.


Declining or stagnating sales, accounting losses, or a
falling stock price are usually the warnings. In
extreme cases such poor performance may cause the
company to default on its debt, resulting in bankruptcy.

2. To correct a large error in how the company is valued in the


capital market.
In large diversified companies that operate in many
different businesses even if the businesses may be
well- run, investors may place too low a value on the overall
portfolio. Restructuring tools like tracking stock, stock
buybacks, or leverage buyouts, can be used to reduce
this kind of value gap.

8
REASONS FOR RESTRUCTURING

3. To support a new corporate strategy, or to take advantage of a


business opportunity.
In an equity spin-off, for example, a diversified firm's
businesses are split apart into independent entities, each with its
own common stock. Spin-offs can make sense when a high-
growth business is being held back by a bureaucratic corporate
parent, or when it no longer makes sense for a company to be
vertically integrated. In this case, a sign that restructuring may be
necessary when the stock market is valuing the entire company
for less than what its separate businesses would be valued for if
they were separate, independently-traded companies.
Restructuring is required to correct a large error in how the
company is valued in the capital market.

9
NEED/PURPOSE OF CORPORATE RESTRUCTURING

 To expand the business or operations of the company.


 To carry on the business of the company more economically
or more efficiently
 To focus on core strength Cost Reduction by deriving the
benefits of economies of scale.
 Obtaining tax advantage by merging a loss making company
with a profit making company .
 To have access to better technology.
 To have better market share.
 To overcome significant problems in a company.
 To become Globally Competitive & eliminate competition.

10
DOES RESTRUCTURING CREATE VALUE?

 The key principle behind corporate restructuring is to create


shareholder value over and above that of the sum of the parts.

 Corporate Restructuring creates value only if:


Value of the combined entity as a result of the corporate restructuring
is greater than the sum of value of individual companies.
 C>A+B Value creation
 C<= A + B Value destruction

11
Symptoms for Restructuring

Symptoms indicating the need for corporate restructuring include:

 The market(s) perception about the organization is


deteriorating.
 The company has difficulties in paying or is unable to pay off
its debts.
 Sales are declining.
 Stock price is falling.
 New skills and capabilities are required to meet operational
requirements.
 Parts of the organization are significantly over or under
staffed.
 Technology and innovation are creating changes in workflow
and production processes.
 Personnel retention and turnover is a significant problem.
 Workforce productivity is stagnant or deteriorating.
 Moral is deteriorating.
12
Obstacles to Restructuring

Common obstacles to restructuring include:

 Denial of acknowledging problems: Organizations have tended


to restructure only reactively in response to pressure and when
action has become unavoidable.

 Saving jobs: Observed mostly in governmental organizations


characterized by lifetime employment and seniority-based
promotion employment security, saving jobs even at the
expense of shareholder interests continues to sway executive
decision-making.

 Internal politics and long-held tradition: Restructuring efforts


can fail because the initiatives are not followed group-wide and are
changed shortly after announcement, when politics and tradition
stand in the way.

13
Obstacles to Restructuring

 Executives' disregard for shareholder value: Organizations


divest their businesses, those businesses are often incurring heavy
losses as a result of several years of poor performance;
executives can be reluctant to divest underperforming
businesses, even when they know that the divestiture will maximize
the value for shareholders.

 Arrogance: Executive management believes that it knows how to


solve the problems without outside help often ignoring changing
market dynamics.

14
Successful Restructuring

Key factors for successful restructuring include:

 Setting specific short- and long-term objectives to be


achieved through restructuring;

 Planning growth scenarios after restructuring in advance;


 Defining core businesses and focusing on them;
 Developing a restructuring plan toward superior
shareholder value;

 Demonstrating leaders' commitments to restructuring;

15
Successful Restructuring

Key factors for successful restructuring include:

 Assessing restructuring alternatives and selecting the


best option;

 Finding the right partners to complete the transactions;


 Executing restructuring in a swift and intensive manner;
 Monitoring the progress of a restructuring plan on a
regular basis;

 Involving external advisors in the restructuring process.

16
FORMS OF CORPORATE RESTRUCTURING

 Expansion  Takeover defenses


 Mergers and Acquisitions  Share repurchases
 Tender Offers  Exchange offers
 Asset Acquisition  Proxy contests
 Joint Ventures

Changes in Ownership
 Contraction Structures
 Spin offs  Leveraged buyout
 Split offs  Junk Bonds
 Divestitures  Going Private
 Equity carve-outs  ESOPs and MLPs
 Assets sale

 Corporate Control
17
EXPANSION

 Expansion is a form of restructuring, which results in an


increase in the size of the firm.

It can take place in the form of


 Mergers and Acquisitions
 Tender Offers
 Asset Acquisition
 Joint Ventures

18
MERGERS
 Merger is defined as a combination of two or more companies into a
single company.
 Amalgamation is the type of merger that involves fusion of two or

more companies. After the amalgamation, the two companies


loose their individual identity and a new company comes into
existence. This form is generally applied to combinations of firms of
equal size.
 The term amalgamation has generally fallen out of popular use in

the United States, being replaced with terms like merger or


consolidation, with which it can be synonymous. However, it is still
commonly used in certain countries, such as India.

A B A
Brooke Bond
India Ltd
Lipton
India Ltd B
Brooke Bond Lipton
India Ltd

19
CITICORP TRAVELERS PLAN
 2nd Largest Commercial Bank in  Financial conglomerate that
USA offers insurance and
 Worlds Leading distributor of investment banking
credit cards services.
 Issuing 60 Million Bank Cards  $698 billion of assets

20
EXAMPLE
 Bangladesh Development Bank Ltd (BDBL)
The case of forming Bangladesh Development Bank Ltd (BDBL) after
the merger of two state-run lenders -- Bangladesh Shilpa Bank and
Bangladesh Shilpa Rin Sangstha

 Robi-Airtel merger
Robi Axiata and Airtel Bangladesh, both of which are mobile phone
operators in Bangladesh, entered into merger talks in September 2015.
Upon requisite approvals from the respective boards of directors,
on October 14 2015, an application under Section 228 and 229 of the
Companies Act 1994 was filed before the High Court Division,
Supreme Court of Bangladesh, which was eventually sanctioned by
the Hon'ble Court on July 14 2016..

21
EXAMPLE
 Though the value of the Robi-Airtel merger was undisclosed, in view
of the fact that the merger would affect a large consumer base and
revenue earnings of the government, it was apparent that a merger of
this scale was being proposed for the first time in Bangladesh.
 Consequently, in sanctioning the merger, the court embarked on a
detailed analysis that will be taken into account in considering the
merger application. The judgment indicated that public interests
comprising a diverse range of socio-economic factors, such consumer
interest, government revenue and employment, shall be carefully
considered in sanctioning an application for merger

22
EXAMPLE
 The Hon'ble Court also elucidated that where necessary, the
court would, by resorting to its inherent jurisdiction, devise
ways and means to enable various interest groups and
stakeholders to air their concerns regarding a proposed merger.
Furthermore, the direction of the Hon'ble High Court to
formulate retirement plans for the employees of the
transferor company, Airtel, goes on to show that in
approving a scheme of amalgamation, the court will be mindful
of fairness to the employees.
 Following the transaction, Axiata, the parent company of
Robi, holds a 68.7% controlling stake and Bharti Airtel
holds a 25% share in the company. Axiata's old partner NTT
Docomo of Japan holds 6.3% of stake. As a consequence of
the merger, the transferee company became the second
largest operator in the country, both in terms of
subscribers and revenues, whereas, in terms of subscribers,
23
in individual capacities, Robi was the third and Airtel was
MERGER OF BANKS: WHO WINS, WHO LOSES?

24
ACQUISITION

 An acquisition is a transaction in which one


company purchases most or all of another
company’s shares to gain control of that company.
 Absorption is a type of merger that involves fusion of a small company
with a large company. After the merger the smaller company ceases to
exist.

A B A
Oriental Bank Of Global Trust Oriental Bank Of
Commerce Bank Commerce

25
EXAMPLE
 Bangladesh’s Akij Group, which has the world’s largest jute yarn
manufacturing unit, acquired Janata Jute Mills for around 7 billion
Bangladeshi taka during the covid-19 pandemic.

 It established a record when Akij Group sold its entire tobacco


business, Dhaka Tobacco, to Japan Tobacco Inc for a mammoth
$1.47 billion in November 2018.

 In June 2020, Unilever acquired an 81.98 per cent stake in


GlaxoSmithKline (GSK) Bangladesh Ltd from Setfirst, a GSK Group
member, marking a record trade value of an individual company in the
history of the Dhaka Stock Exchange, valued at a total 20.2075 billion
Bangladeshi taka.

26
EXAMPLE

 In April 2018, an interesting M&A transaction took place between Alipay,


an affiliate of Alibaba Group, and bKash, when 20 per cent of the
latter was bought by Alibaba Group. Neither bKash nor Alipay gave any
financial figure on the deal.

 Airtel Bangladesh acquired Warid Bangladesh in 2010. After the


merge, Robi Axiata marketed Airtel as "the #1 network of friends"
targeting the youth.

27
ACQUISITION IN MOBILE INDUSTRY
 There have been a few major acquisitions in the
telecoms sector in the recent past that are worthy of
mention:
 the purchase by Malaysia’s Axiata of telecom
operator Aktel, which was later rebranded as
Robi;
 the acquisition of Warid Telecom by India’s
Airtel; and
 the purchase of Sheba Telecom by Egypt’s
Orascom Telecom.
 The acquisition of significant shares of City Cell by
SingTel and Aktel’s shares by NTT DoCoMo
were all among notable acquisitions in the sector. 28
JOINT VENTURE

 A joint venture (JV) is a business arrangement in which two or


more parties agree to pool their resources for the
purpose of accomplishing a specific task. This task can be a
new project or any other business activity.
 Each of the participants in a joint venture is responsible for
profits, losses, and costs associated with it. However, the
venture is its own entity, separate from the
participants’ other business interests.

A B AB
Hero Motor Honda Hero Honda
Corp

29
EXAMPLE OF JOINT VENTURE
 China and Bangladesh has established a new joint venture company
(JVC), titled “Bangladesh-China Power Company (Pvt) Ltd
(Renewable),” to implement renewable energy projects having a target
to generate around 500 MW of electricity.

State-run North-West Power Generation Company Ltd (NWPGCL)


and China National Machinery Import and Export Corporation
(CMC) inked a joint venture agreement on Tuesday to form the JVC
where both the companies will have equal stakes. Authorised capital of
the JVC is Tk 10 billion, while its paid-up capital is Tk 160 million.

30
EXAMPLE
 • A.K. Khan Water Health Bangladesh Ltd. (2010):

 A K Khan WaterHealth (Bangladesh) Ltd. is a joint venture between


A.K. Khan & Co. Ltd., Bangladesh; and WaterHealth International,
USA with the International Finance Corporation (IFC), a member of the
World Bank Group, as an equity investor. The company was established
with the goal of providing clean drinking water to rural and peri-urban
areas through a decentralized community water system model.
WaterHealth International’s patented technology platform allows
purification of either surface or ground water which is dispensed at each
A K Khan WaterHealth Center. The water is sold under the brand
name of Dr. Water

31
TENDER OFFER

 A tender offer is a bid to purchase some or all of the


shareholders' stock in a corporation. Tender offers are
typically made publicly and invite shareholders to sell
their shares for a specified price and within a
particular window of time. The price offered is usually
at a premium to the market price. A tender offer
might, for instance, be made to purchase outstanding
stock shares for $18 a share when the current market
price is only $15 a share.

B
C
D
Public Offer E
A G
H
I
F

J
K 32
EXAMPLE ---- TENDER OFFER

 AstraZenca Pharmaceuticals AB, a Swedish firm, announced an


open offer to acquire 8.4% stake in AstraZenca Pharma India at
a floor price of Rs. 825 per share.

 Flextronics International giving an open market offer at Rs. 548


for 20% of paid up capital in Hughes Software Systems.

33
ASSET ACQUISITION
 A buyout strategy in which key assets of the target company are
purchased, rather than its shares. These assets may be tangible
assets like a manufacturing unit or intangible assets like brands. This
is particularly popular in the case of bankrupt companies, who
might otherwise have valuable assets which could be of use to
other companies, but whose financing situation makes the company
unattractive for buyers.

Paten Plant
ts & M/C

A BB
Pat
A
A
Plant
Cash Stock ents
&
M/C

Land &
Building
34
EXAMPLES ---- ASSET ACQUISITION

 The acquisition of the cement division of Tata Steel by Laffarge


of France. Laffarge acquired only the 1.7 million tonne cement
plant and its related assets from Tata Steel.

 The asset being purchased may also be intangible in nature. For


example, Coca-Cola paid Rs.170 crore to Parle to acquire its soft
drinks brands like Thums Up, Limca, Gold Spot etc.

 Google acquired the Motorola for its new open source operating
system “Android” for the need of Motorola’s 17000 patents out of
which Google needs around 6000 patents.

35
FORMS OF CORPORATE RESTRUCTURING

 Expansion  Corporate Control


 Mergers and Acquisitions  Takeover defenses

 Tender Offers  Share repurchases

 Asset Acquisition  Exchange offers

 Joint Ventures  Proxy contests

 Contraction Changes in Ownership


 Spin offs Structures
 Leveraged buyout
 Split offs
 Junk Bonds
 Divestitures
 Going Private
 Equity carve-outs
 ESOPs and MLPs

36
CONTRACTION

 Contraction is a form of restructuring, which results in a reduction in the


size of the firm. It can take place in the form of a

 Spin-off,
 Split off,
 Split-UP
 Divestiture
 Equity carve-out.

37
SPIN-OFF

 A Company distributes all the shares it owns in a subsidiary to its


own shareholders implying creation of two separate public
companies with same proportional equity ownership. Sometimes, a
division is set up as a separate company. Hence, the stockholders
proportional ownership of shares is the same in the new legal subsidiary
as well as the parent firm. The new entity has its own management and
is run independently from the parent company. A spin-off does not result
in an infusion of cash to parent company.
Shareholders of
Shareholders of Company A also
Company A has shares of
Company B

A B
A B
Subsidiary
Company
of A B 38
EXAMPLES ----- SPIN-OFF

 Air-India has formed a separate company named Air-India


Engineering Services Ltd., by spinning-off its engineering
division.

 Agilent Technologies spun out of Hewlett-Packard in 1999,


formed from HP's former test-and-measurement equipment
division.

 Cenovus Energy was spun out of Encana Corporation in 2009

 Shugart Associates was a spin-out of IBM.

39
SPLIT- OFF
 In a split off, a new company is created to takeover the operations of an
existing division or unit. A portion of existing shareholders receives stock
in a subsidiary (new company) in exchange for parent company
stock. Hence the shareholding of the new entity does not reflect
the shareholding of the parent firm. A split-off does not result in
any cash inflow to the parent company
Shareholders of
Shareholders of Company A
Company A Sharehold Sharehold
ers of ers of
Company Company
A B
A D
New Compan

A B
C D E F
C E F D
Operations of 40
SPLIT-UP

 In a split-up the entire firm is broken up in series of spin-offs, so that


the parent company no longer exists and only the new off springs
survive. A split-up involves the creation of a new class of stock for each
of the parent’s operating subsidiaries, paying current shareholders a
dividend of each new class of stock, and then dissolving the parent
company.
Shareholders of
Shareholders of Company A will
Company A get shares of

A A

B C D E
B C D E
Subsidiary 41
EXAMPLES ------ SPLIT-UP

 The Andhra Pradesh State Electricity Board (APSEB) was split-up


in 1999 as part of the Power Sector reforms. The power generation
business and the transmission and distribution business has
transferred to two separate companies called APGENCO and
APTRANSCO respectively. APSEB ceased to exist as a result of
split-up.

42
DIVESTITURES
 A divestiture is a sale of a portion of the firm to an outside party,
generally resulting in an infusion of cash to the parent. A firm may
choose to sell an undervalued operation that it determines to be non-
strategic or unrelated to the core business and to use the proceeds of
the sale to fund investments in potentially higher return opportunities.

Some
Operations of
A Pat
Sha
C A Sha
res
ent
s
B
B
Ope
res
rati
A Cash
ons
of A
Ass
Ope Ass
ets
ratio ets
ns
43
EQUITY CARVE OUT

 A parent has substantial holding in a subsidiary. It sells part of


that holding to the public. "Public" does not necessarily mean
a shareholder of the parent company. Thus the asset item
"Subsidiary Investment" in the balance-sheet of the parent
company is replaced with cash. Parent company keeps
control of the subsidiary but gets cash.

A
Issues IPO of B
20% Shares of Investors
B

CCashA
20%
B Shares
of
Subsidiary Compa
Company ny B
44
of A
FORMS OF CORPORATE RESTRUCTURING

 Expansion  Takeover defenses


 Mergers and Acquisitions  Share repurchases
 Tender Offers  Exchange offers
 Asset Acquisition  Proxy contests
 Joint Ventures

Changes in Ownership
 Contraction Structures
 Spin offs  Leveraged buyout
 Split offs  Junk Bonds
 Divestitures  Going Private
 Equity carve-outs  ESOPs and MLPs
 Assets sale

 Corporate Control
45
CORPORATE CONTROL

 Firms can also restructure without necessarily acquiring


new firms or divesting existing corporations. Corporate
control involves obtaining control over the management
of the firm. Control is the process by which managers
influence other members of an organization to
implement the organizational strategies

46
TAKEOVER DEFENSES

 Takeover defenses, both pre-bid and post-bid have been resorted to by


the companies.
 Pre Bid: This defense is also called preventive defense it is

employed to prevent a sudden, unexpected hostile bid from gaining


control of the company.
 Post Bid: When preventive takeover defenses are not successful in

fending off an unwanted bid, the target implements post-bid or active


defenses
 These takeover defenses intend to change the corporate control
position of the promoters.

47
CONTD…
 White Squire
I Want to Acquire me
Acquire You Plzzzz…
A No Thanks
C is B Ok, I will Acquire
C
Acquiring Lesser part from
me U.
 Recapitalization
Buy Back Of its
Shares at
Banks Premium Price
Or Lending Stock
Invest Money A OR Marke
ors Paying More as t
Dividends

“A” is acting as its Own White Knight 48


Share Repurchase
A share repurchase or buyback is a decision by a company to buy
back its own shares from the marketplace. A company might buy
back its shares to boost the value of the stock and to improve the
financial statements. Companies tend to repurchase shares when
they have cash on hand and the stock market is on an upswing.

49
Exchange Offer
An exchange offer, in finance, corporate law and securities law, is a
form of tender offer, in which securities are offered as
consideration instead of cash. In a bond exchange offer,
bondholders may consensually exchange their existing bonds for
another class of debt or equity securities.

50
Proxy Contest
A proxy contest is a campaign to solicit votes (or proxies) in
opposition to management at an annual or special meeting of
stockholders or through action by written consent.

51
FORMS OF CORPORATE
RESTRUCTURING
 Expansion  Corporate Control
 Mergers and  Takeover defenses
Acquisitions  Share repurchases
 Tender Offers  Exchange offers
 Asset Acquisition  Proxy contests
 Joint Ventures
Changes in
 Contraction Ownership
 Spin offs Structures
 Split offs  Leveraged buyout
 Divestitures  Junk Bonds
 Equity carve-outs  Going Private
 Assets sale  ESOPs and MLPs
52
Leveraged buyout
A leveraged buyout (LBO) occurs when the buyer of a company
takes on a significant amount of debt as part of the purchase.
The buyer will use assets from the purchased company as
collateral and plan to pay off the debt using future cash flow. In a
leveraged buyout, the buyer takes a controlling interest in the
company.

53
54
Junk Bonds
 A bond that has a high risk of the underlying company
defaulting is called a junk bond. Companies that issue junk bonds
are typically start-ups or companies that are struggling financially.
Junk bonds carry risk since investors are unsure whether they'll be
repaid their principal and earn regular interest payments.

55
Junk Bond

56
Going Private
 The term going private refers to a transaction or series of
transactions that convert a publicly traded company into a
private entity. Once a company goes private, its shareholders are no
longer able to trade their shares in the open market.

57
ESOP

58
59
MLPS (MASTER LIMITED
PARTNERSHIPS)
Master Limited Partnerships (MLPs) are publicly listed limited
partnerships that trade on a national securities exchange. Most
MLPs have general partners and many limited partners (the
investors).

60

You might also like