Introduction :Restructuring is the corporate management term for the act of partially dismantling and 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. Restructuring is often done as part of a bankruptcy or of a takeover by another firm, particularly a leveraged buyout by a private equity firm. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. The "Corporate restructuring" is an umbrella term that includes mergers and consolidations, divestitures and liquidations and various types of battles for corporate control. The essence of corporate restructuring lies in achieving the long run goal of wealth maximisation. This study is an attempt to highlight the impact of corporate restructuring on the shareholders value in the Indian context. Thus, it helps us to know, if restructuring generates value gains for shareholders (both those who own the firm before the restructuring and those who own the firm after the restructuring), how these value gains have be created and achieved or failed. Meaning and Need of Restructuring Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Corporate restructuring is the process of redesigning one or more aspects of a company. The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, o r p o i s e the corporation t o m o v e i n a n e n t i r e l y n e w d i r e c t i o n . H e r e a r e s o m e examples of why corporate restructuring may t a k e p l a c e a n d w h a t i t c a n mean for the company .Restructuring a corporate entity is often a necessity when the company has g r o w n t o t h e p o i n t t h a t t h e o r i g i n a l s t r u c t u r e c a n n o l o n g e r e f f i c i e n t l y manage the output and general interests of the company. For example, a c o r p o r a t e r e s t r u c t u r i n g m a y c a l l f o r spinning o f f s o m e d e p a r t m e n t s i n t o subsidiaries as a means of creating a more effective management model as well as taking advantage of tax breaks that would allow the corporation to d i v e r t more revenue to the production process. In this scenario, t h e restructuring is seen as a positive sign of growth of the company and is often

welcome by those who wish to see the corporation gain a larger market share. Corporate restructuring may also take place as a result of the acquisition of t h e c o m p a n y b y n e w o w n e r s . T h e a c q u i s i t i o n m a y b e i n t h e f o r m o f a leveraged buyout, a hostile takeover, o r a merger of some type that keeps the company intact as a subsidiary of the controlling corporation. When there structuring is due to a hostile takeover, corporate raiders often implement a dismantling of the company, selling off properties and other assets in order to make a profit from the buyout. What remains after this restructuring mayb e a s m a l l e r e n t i t y t h a t c a n c o n t i n u e t o f u n c t i o n , a l b e i t n o t a t t h e l e v e l possible before the takeover took place I n g e n e r a l , t h e i d e a o f c o r p o r a t e r e s t r u c t u r i n g i s t o a l l o w t h e c o m p a n y t o continue functioning in some manner. Even when corporate raiders break up the company and leave behind a shell of the original structure, there is still usually a hope, what remains can function well enough for a new buyer to purchase the diminished corporation and return it to profitability. Characteristics The selling of portions of the company, such as a division that is no longer profitable or which has distracted management from its core business, can greatly improve the company's balance sheet. Staff reductions are often accomplished partly through the selling or closing of unprofitable portions of the company and partly by consolidating or outsourcing parts of the company that perform redundant functions (such as payroll, human resources, and training) left over from old acquisitions that were never fully integrated into the parent organization. Other characteristics of restructuring can include: Changes in corporate management (usually with golden parachutes)

Retention of corporate management sometimes "stay bonus" payments or equity grants Sale of underutilized assets, such as patents or brands

Outsourcing of operations such as payroll and technical support to a more efficient third party Moving of operations such as manufacturing to lower-cost locations

 Reorganization of functions such as sales, marketing, and distribution Renegotiation Refinancing of of labour contracts debt to to reduce reduce interest overhead payments

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A major public relations campaign to reposition the company with consumers Forfeiture of all or part of the ownership share by pre restructuring stock holders

Restructuring Methods There are several restructuring methods: doing an outright sell-off, doing an equity carve-out, spinning off a unit to existing shareholders or issuing tracking stock. Each has advantages and disadvantages for companies and investors. All of these deals are quite complex. Sell-Offs A sell-off, also known as a divestiture, is the outright sale of a company subsidiary. Normally, sell-offs are done because the subsidiary doesn't fit into the parent company's core strategy. The market may be undervaluing the combined businesses due to a lack of synergy between the parent and subsidiary. As a result, management and the board decide that the subsidiary is better off under different ownership. Besides getting rid of an unwanted subsidiary, sell-offs also raise cash, which can be used to pay off debt. In the late 1980s and early 1990s, corporate raiders would use debt to finance acquisitions. Then, after making a purchase they would sell-off its subsidiaries to raise cash to service the debt. The raiders' method certainly makes sense if the sum of the parts is greater than the whole. When it isn't, deals are unsuccessful. Equity Carve-outs More and more companies are using equity carve-outs to boost shareholder value. A parent firm makes a subsidiary public through an initial public offering (IPO) of shares, amounting to a partial sell-off. A new publicly-listed company is created, but the parent keeps a controlling stake in the newly traded subsidiary. A carve-out is a strategic avenue a parent firm may take when one of its subsidiaries

is growing faster and carrying higher valuations than other businesses owned by the parent. A carve-out generates cash because shares in the subsidiary are sold to the public, but the issue also unlocks the value of the subsidiary unit and enhances the parent's shareholder value. The new legal entity of a carve-out has a separate board, but in most carve-outs, the parent retains some control. In these cases, some portion of the parent firm's board of directors may be shared. Since the parent has a controlling stake, meaning both firms have common shareholders, the connection between the two will likely be strong. That said, sometimes companies carve-out a subsidiary not because it's doing well, but because it is a burden. Such an intention won't lead to a successful result, especially if a carved-out subsidiary is too loaded with debt, or had trouble even when it was a part of the parent and is lacking an established track record for growing revenues and profits. Carve-outs can also create unexpected friction between the parent and subsidiary. Problems can arise as managers of the carved-out company must be accountable to their public shareholders as well as the owners of the parent company. This can create divided loyalties. Spinoffs A spinoff occurs when a subsidiary becomes an independent entity. The parent firm distributes shares of the subsidiary to its shareholders through a stock dividend. Since this transaction is a dividend distribution, no cash is generated. Thus, spinoffs are unlikely to be used when a firm needs to finance growth or deals. Like the carve-out, the subsidiary becomes a separate legal entity with a distinct management and board. Like carve-outs, spinoffs are usually about separating a healthy operation. In most cases, spinoffs unlock hidden shareholder value. For the parent company, it sharpens management focus. For the spinoff company, management doesn't have to compete for the parent's attention and capital. Once they are set free, managers can explore new opportunities. Investors, however, should beware of throw-away subsidiaries the parent created to separate legal liability or to off-load debt. Once spinoff shares are issued to parent company shareholders, some shareholders may be tempted to quickly dump these shares on the market, depressing the share valuation.

Tracking Stock A tracking stock is a special type of stock issued by a publicly held company to track the value of one segment of that company. The stock allows the different segments of the company to be valued differently by investors. Let's say a slow-growth company trading at a low price-earnings ratio (P/E ratio) happens to have a fast growing business unit. The company might issue a tracking stock so the market can value the new business separately from the old one and at a significantly higher P/E rating. Why would a firm issue a tracking stock rather than spinning-off or carving-out its fast growth business for shareholders? The company retains control over the subsidiary; the two businesses can continue to enjoy synergies and share marketing, administrative support functions, a headquarters and so on. Finally, and most importantly, if the tracking stock climbs in value, the parent company can use the tracking stock it owns to make acquisitions. Still, shareholders need to remember that tracking stocks are class B , meaning they don't grant shareholders the same voting rights as those of the main stock. Each share of tracking stock may have only a half or a quarter of a vote. In rare cases, holders of tracking stock have no vote at all.

Category of corporate restructuring

Corporate Restructuring entails a range of activities including financial restructuring and organization restructuring. FINANCIAL RESTRUCTURING Financial restructuring is the reorganization of the financial assets and liabilities of a corporation in order to create the most beneficial financial environment for the company. The process of financial restructuring is often associated with corporate restructuring, in that restructuring the general function and composition of the company is likely to impact the financial health of the corporation. When completed, this reordering of corporate assets and liabilities can help the company to remain competitive, even in a depressed economy. Just about every business goes through a phase of financial restructuring at one time or another. In some cases, the process of restructuring takes place as a means of allocating resources for a new marketing campaign or the launch of a new product line. When this happens, the restructure is often viewed as a sign that the company is financially stable and has set goals for future growth and expansion.

Need For Financial Restructuring The process of financial restructuring may be undertaken as a means of eliminating waste from the operations of the company. For example, the restructuring effort may find that two divisions or departments of the company perform related functions and in some cases duplicate efforts. Rather than continue to use financial resources to fund the operation of both departments, their efforts are combined. This helps to reduce costs without impairing the ability of the company to still achieve the same ends in a timely manner In some cases, financial restructuring is a strategy that must take place in order for the company to continue operations. This is especially true when sales decline and the corporation no longer generates a consistent net profit. A financial restructuring may include a review of the costs associated with each sector of the business and identify ways to cut costs and increase the net profit. The restructuring may also call for the reduction or suspension of production facilities that are obsolete or currently produce goods that are not selling well and are scheduled to be phased out. Financial restructuring also take place in response to a drop in sales, due to a sluggish economy or temporary concerns about the economy in general. When this happens, the corporation may need to reorder finances as a means of keeping the company operational through this rough time. Costs may be cut by combining divisions or departments, reassigning responsibilities and eliminating personnel, or scaling back production at various facilities owned by the company. With this type of corporate restructuring, the focus is on survival in a difficult market rather than on expanding the company to meet growing consumer demand. All businesses must pay attention to matters of finance in order to remain operational and to also hopefully grow over time. From this perspective, financial restructuring can be seen as a tool that can ensure the corporation is making the most efficient use of available resources and thus generating the highest amount of net profit possible within the current set economic environment. ORGANIZATIONAL RESTRUCTURING In organizational restructuring, the focus is on management and internal corporate governance structures. Organizational restructuring has become a very common practice amongst the firms in order to match the growing competition of the market.

This makes the firms to change the organizational structure of the company for the betterment of the business. Need For Organization Restructuring New skills and capabilities are needed to meet current or expected operational requirements. Accountability for results are not clearly communicated and measurable resulting in subjective and biased performance appraisals. Parts of the organization are significantly over or under staffed. Organizational communications are inconsistent, fragmented, and inefficient. Technology and/or innovation are creating changes in workflow and production processes. Significant staffing increases or decreases are contemplated. Personnel retention and turnover is a significant problem. Workforce productivity is stagnant or deteriorating. Morale is deteriorating. Hurdles of Corporate Restructuring: Restructuring is not as simple as Making the mission statement in the morning assessing the corporate strengths and weakness in the afternoon and articulating the strategies by evening. Some of these are discussed below Culture : Culture is an important intermediary which determines the strategy will or will not be successfully implemented. Culture either helps or hinders an organization as it seeks to achieve competitive advantage. The right culture for an organisation is the one that best supports its strategic objectives. The challenge for an organization is thus to assess the fit between the current culture and the culture required to implement the chosen strategy successfully and to take steps to change the organisations culture to better align it with what is required.

Inadequate focus and commitment of top management towards change program: Any change program will be successfully only if it gets adequate support and commitment of the top management. If the top management themselves are not focussed or committed the restructuring will be a failure. What is in it for me attitude: Say in case of a merger or an Acquisition , if the each party is concered only about itself rather than the organization as a whole, the restructuring would not be effective nor successful i.e. if each party tries to gain benefits for itself at the cost of the others, the new organization would fail. Mind set/ resistance to change: Any restructuring activity involves some amount of change. Be it a merger or a joint venture or a takeover, the management as well as the employees require to align themselves the new structure. If they are not willing to change their mindset, the restructuring will not be successful. Lack of involvement of employees: A restructuring activity requires a lot of change: change in mindset, change in the working, change in the reporting, a change in the structure, etc. since human tendency is to resist change, the best way to incorporate any change is to involve people in the formation of this change. Failure to do so would invite resistance from them which in turn will affect a successful restructuring. Poor planning: As goes the phrase Well started is half done. If your planning stage itself is faulty, the whole activity would be affected. Resource Availability: Resource availability could be another constraint. Lack of availability of adequate resources could affect the working of the business and affect the restructuring activity as a whole. Cost and time : The cost and time involved for the gains to seep through into the organization may at times make the firm retreat from the process of restructuring.

Poor communication: At times, due to poor communication, the need and benefits of the restructuring activity has not been percolated to the lower levels of the organization. This in turn would affect the effective working of the employees and their performance. Unstructured communication flow, unclear reporting structures, etc, after a restructuring activity, could also affect the efficient working of the organization. Strategies for Organisational Restructuring Various strategies for business restructuring are available. The following straties play an important role in the business restructuring: 1. Smart sizing: It is the process of reducing the size of a company by laying off employees on the basis of incompetence and inefficiency. Some Examples Acquisitions: HLL took over TOMCO. Diversification: Videocon group is diversified into power projects, oil exploration and basic telecom services. Merger : Asea and Brown Boveri came together to from ABB. Strategic alliances: Siemens is expanding its medical electronics division a new factory for medical electronics is already come up in goa. 2. Networking : It refers to the process of breaking companies into smaller independent business units for significant improvement in productivity and flexibility. The phenomenon is predominant in South Korea, where big companies like Samsung, Hyundai and Daewoo are breaking themselves up into smaller units. These firms convert their managers into entrepreneurs. 3. Virtual Corporation : It is a company that has taken steps to turn itself inside out. Rather than having managers and staff sitting inside their offices moving papers from in basket to out basket, a virtual corporation kicks the employees outside, sending them to works in cutomerss offices and plant, determining what the customers needs and want, then reshaping the corporate product and services to the customers exact needs. 4. Verticalisation: It refers to regrouping of management functions for particular function for a particular product range to achieve higher accountability and

transparency. Siemens in 1990 moved from a function oriented structure to a vertical entrepreneur oriented structure embracing size business and three support divisions.

REASONS FOR THE FAILURE OF RESTRUCTURING EFFORTS 1. Lack of bullet-proof strategy the organization unintentionally adopts a flawed or incomplete restructuring strategy. For example, there could be a flawed transition strategy, a flawed environmental strategy or strategic processes. 2. Rely on experts to help us the organization makes inappropriate use of outside consultants and outside contractors. 3. Known for our on-the-job-training the work force is tied down to the old technology with inadequate training programs 4. Our needs are simple & straightforward the organization has too little elicitation 5. Planning When the restructuring deals with software, it tends to deal with day-to-day problems but forgets to take into account the high-level problems it could face. 6. Management lacks long-term commitments the organization feels that tomorrow is another day. The management forgets or mis-interprets the long term need for the organization structure to remain stable. The better the long-term commitments taken by management will lead to greater growth and prosperity of the organization. For example, managing to your expected lifetime in that position

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Conclusion: Corporate restructuring is the process of redesigning one or more aspects of a company. So we may conclude by saying that CORPORATE RESTRUCTURING is an innovative strategy which in my general terms, leads to the beautification of a business and in technical terms results in the optimum utilization of various

resources, increases net value of the firm in its market, allows better functioning and positioning of employees.

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