By

Dr. Vaibhav Kaushik

 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 a merger, acquisition,
tender offer, asset acquisition or a joint venture.
 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.

A B AB
Brooke Bond Lipton Brooke Bond Lipton
India Ltd India Ltd India Ltd
 A corporate action where an acquiring company makes a bid for
an acquiree. If the target company is publicly traded, the acquiring
company will make an offer for the outstanding shares
 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
 Cooperation between two or more companies in which the
purpose is to achieve jointly a specified business goal. Upon the
attainment of the goal, the joint venture is terminated. A joint
venture, which is typically limited to one project, differs from a
partnership that can work jointly on many projects.

A B AB
Hero Motor Honda Hero Honda
Corp
 Tender offer is a corporate finance term denoting a type of
takeover bid. The tender offer is a public, open offer or invitation
(usually announced in a newspaper advertisement) by a
prospective acquirer to all stockholders of a publicly traded
corporation (the target corporation) to tender their stock for sale at
a specified price during a specified time, subject to the tendering
of a minimum and To induce the shareholders of the target
company to sell, the acquirer's offer price usually includes a
premium over the current market price of the target company's
shares. maximum number of shares.
B
C
D
Public Offer E
A G
H
I
F

J
K
 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 un-attractive for buyers

A B A
 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.

 M3M India acquired DLF 28- Acre Plot in Gurgaon as non core
assets for Rs 440 Cr.
 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,
 Divestiture
 Equity carve-out.
  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 has
Company A
shares of Company B

A B
A B
Subsidiary
Company
of A
B
 Air-India has formed a separate company named Air-India
Engineering Services Ltd., by spinning-off its engineering
division.
 Guidant was spun out of Eli Lilly and Company in 1994,
formed from Lilly's Medical Devices and Diagnostics 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.
  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
Shareholders Shareholders
of Company of Company
A B
A D
New Company

A B
C D E F C E F D
Operations of Company A
  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 get
Company A shares of

A A

B C D E
B C D E
Subsidiary Companies of A
 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.
 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
Oper
A Cash
B ation
s of A

Oper
ations
 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% Investors
Shares of B

CCashA
20%
B Shares
of
Subsidiary Compan
Company yB
of A
 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
 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.