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CORPORATE
RESTRUCTURING
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CONTENTS
Corporate restructuring
-different methods of restructuring
-joint ventures
-sell off and spin off
-divestitures
-equity carve out
-leveraged buy outs (LBO)
– management buy outs
-master limited partnerships
-employee stock ownership plans (ESOP)
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WHAT IS CORPORATE RESTRUCTURING
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It includes activities such as
Mergers,
Purchases of business units,
Takeovers,
Slump sales,
Demergers,
Leveraged buyouts,
Organizational restructuring, and
Performance improvement initiatives.
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Categories of Corporate Restructuring
outright or
partial purchase or
sale of companies or product lines or
downsizing by closing unprofitable, non-strategic facilities.
2. Financial Restructuring:
refers to the actions taken by the firm to change its total debt & equity
structuring.
Ownership restructuring
Business restructuring
Asset restructuring
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CHARACTERISTICS
1. To improve the co., Balance sheet, (by selling unprofitable division from its core
business).
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PURPOSE OF CORPORATE RESTRUCTURING
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FORMS OF CORPORATE RESTRUCTURING
Expansion
Sell-offs
Spin- offs
Split-offs
Corporate Split-ups
Restructuring Equity carve outs
Corporate Control
Premium Buy-backs
Standstill Agreements
Anti-takeover Amendments
Proxy contests
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B. JOINT VENTURE
Joint ventures are new enterprises owned by two
or more participants. They are typically formed for
special purposes for a limited duration.
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Examples for JV
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CHARACTERISTICS OF JOINT VENTURE
1. Contribution by partners of:
a) Money
b) Knowledge
c) Property
d) Skill
e) Effort or other assets to a common undertaking.
9. Limited risk 13
Reasons for forming a joint venture
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MOTIVES TO JOINT VENTURE
2. Learning-experience
3. Sharing of risk
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RATIONAL FOR JOINT VENTURES
1. To augment insufficient financial or technical ability to enter a particular line
or business.
2. To share technology & generic mgt skills in orgn, planning & control.
3. To diversify risk
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International joint venture:
Example:
US steel/ Pohang iron & Steel – steel (Product) – raise capital & expand
market
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Reasons for the failure of JV
The hoped – for technology never developed
Or
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PARTIAL SELL-OFF
For example:
when Coromandal Fertilizers Limited sold its cement
division to India Cement Limited, the size of
Coromandal Fertilizers contracted whereas the size of
India Cements Limited expanded.
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Motives for Sell off
• Raising capital
• Curtailment of losses
• Strategic realignment
• Efficiency gain
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DEMERGERS
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DEMERGERS STRUCTURE
Transfers undertaking Y
X Y Y
Ex: AT &T
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Spin-Offs Structure
Transfer of undertaking Y
X Y Y
Consideration issue
Company A of shares Company B
Proportion of ownership:
The existing stockholders have the same proportion of ownership in
the new entity as in the original firm.
Separation of control
The new entity exists as a separate decision-making unit.
It may develop policies & strategies different from those of the
original parent.
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SPLIT – OFF
A transaction in which some, but not all, parent co.,
shareholders receive shares in a subsidiary in return for
relinquishing their parent co., share.
In other words……………….
Features
A portion of existing shareholders receives stock in a
subsidiary in exchange for parent co., stock.
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SPLIT - UP
In a split-up, a company is split up into two or more independent
companies.
Features
The entire firm is broken up in a series of spin-offs.
The parent no longer exists and
Only the new offspring survive.
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DIVESTITURES
Represent the sale of a segment of a company
(assets, a product line, a subsidiary) to a 3rd party for
cash and or securities
Ex: VSNL
Features:
It is used as a means of eliminating or separating:
a) Product line
b) Division
c) Subsidiary.
It represents the sale of a segment of a co., to a 3rd
party.
The assets are revalued, by the sale, for purpose of
future depreciation by the buyer.
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MOTIVES FOR DIVESTITURES
Antitrust
Need cash
Good price.
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Equity carve-out
In other words……………………..
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Features of ECO
It is the sale of a minority or majority voting control in a
subsidiary by its parents to outsider investors. These are
also referred to as “split-off IPO’s”
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Difference between Spin-off and Equity carve outs:
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