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Mergers, Acquisitions And Corporate Restructuring

Prasad G. Godbole

Copyright © 2009 Vikas Publishing House rights reserved. Prasad G. Godbole. All Pvt. Ltd. All rights reserved.

All Pvt. . Ltd. STRATEGIES AND TACTICS Copyright © 2009 Vikas Publishing House rights reserved. All rights reserved.Section 1: CONCEPTS. Prasad G. Godbole.

Godbole. Prasad G. Ltd. All Pvt.Chapter 1 Corporate Restructuring Copyright © 2009 Vikas Publishing House rights reserved. . All rights reserved.

CHAPTER 1 CHAPTER 1 Why Corporate Restructuring?       Increased Competition Advent of a new and more efficient technology Emergence of new markets Emergence of new classes of consumers Demographic changes Business cycles ‘Wise organizations undertake changes to increase their cutting edge over the competitors and enhance their leadership position.’ .

. not all the changes that a company undergoes would qualify to be termed as ‘ corporate restructuring’.CHAPTER 1 Why Corporate Restructuring? However.

CHAPTER 1 Corporate Restructuring Definition Corporate restructuring can be defined as any change in the business capacity or portfolio that is carried out by an inorganic route or Any change in the capital structure of a company that is not a part of its ordinary course of business or Any change in the ownership of or control over the management of the company or a combination of any two or all of the above .

amounted to ‘corporate restructuring’ of L&T. Hence. through Jaguar Land Rover Limited is ‘corporate restructuring’ Grasim’s acquisition of Larsen & Toubro’s (L&T) cement division through UltraTech Cement Limited is an example of ‘corporate restructuring’   (b) Change in the business portfolio could also be in the nature of reduction of business handled by a company  In the case of Grasim and L&T. (a) Any change in the business capacity or portfolio carried out by inorganic route  Tata Motors launched Sumo and later.leading to an expansion of its business portfolio. these products were launched from Tata Motor’s own manufacturing capacity in through an organic route. it would not qualify as ‘corporate restructuring’ Tata Motors’ acquisition of Jaguar Land Rover from Ford. However. the demerger of L&T’s cement business into UltraTech Cement Limited was reduction of its business portfolio and thus.CHAPTER 1 Corporate Restructuring I. Indica. .

Within a targeted or planned range if the debt/equity ratio fluctuates. Any change in the capital structure of a company that is not in the ordinary course of its business  Capital structure refers to debt equity ratio. An initial public issue. the proportion of debt and equity in the total capital of a company. Borrowing of a significant amount of term loan or an issue of five year nonconvertible debenture do not qualify to be called ‘corporate restructuring’ . and thus. or a follow-on public issue or buy-back of equity shares would permanently alter the capital structure of a company. would amount to ‘corporate restructuring’. such changes in the capital structure do not amount to ‘capital restructuring’.     . This capital structure is never static and changes almost daily.e.CHAPTER 1 Corporate Restructuring II. i.

CHAPTER 1 Corporate Restructuring III. Any change in the ownership of a company or control over its management a) b) c) d) e) Merger of two or more companies belonging to different promoters Demerger of a company into two or more with control of the resulting company passing on to other promoters Acquisition of a company Sell-off of a company or its substantial assets Delisting of a company  All these would qualify to be called exercises in ‘corporate restructuring’. .

managers. Initial creation of a corporate structure  Its various examples are: – Incorporation of a limited company – Conversion of a proprietary concern into a company – Conversion of a partnership firm into a company – Conversion of a private company into a public company II. Change in the internal command structure or hierarchy  The command structure of an organization or its hierarchy simply means the reporting relationships among the employees. top management and their various functions.CHAPTER 1 The Activities or Changes which are not termed ‘Corporate Restructuring’ I. – Functional organization – Divisional organization – Matrix organization Continued… .

is the fundamental rethinking and redesign of business processes to achieve dramatic improvement in critical. quality. service and speed. III. the hierarchies have stopped strictly falling into one of the three types mentioned in the earlier slide. such as cost..’  It refers to the radical redesigning of business processes and not to the ownership and control or to the capital structure of the organization. Change in the business process  This is also called ‘reengineering’.  Reengineering is also outside the ambit of ‘corporate restructuring’.CHAPTER 1 The Activities or Changes Which are Not Termed ‘Corporate Restructuring’  With businesses having become more complex along with the acceptance of newer concepts of organization building such as tutorship. properly. etc. ‘Reengineering. contemporary measures of performance.  Any migration of an organization from functional to divisional or to matrix type or to any new or hybrid type or vice-versa would not be a case of ‘ corporate restructuring’. mentorship. .

recurring cost and/or capital expenditure.  Downsizing is also outside the purview of ‘corporate restructuring’. total quality management. Other activities  Activities such as outsourcing.CHAPTER 1 The Activities or Changes which are not termed ‘Corporate Restructuring’ IV. networking alliances and licensing do not classify as corporate restructuring activities. . either as an objective itself or as a result of reengineering. franchising alliances. enterprise resource planning. Downsizing  It is another form of organizational change in which the business organization substantially cuts down on its manpower. V.

CHAPTER 1 Major Forms of Corporate Restructuring           Merger Consolidation Acquisition Divestiture Demerger (spin off/split up/split off) Carve Out Joint Venture Reduction of Capital Buy-back of Securities Delisting of Securities/Company .