Corporate Restructuring means rearranging the business of a company for increasing its efficiency and profitability.

It is tool to catapult value to the organization as well as to the investors. It is the fundamental change in a company's business or financial structure with the motive of increasing the company's value to shareholders or creditors. Hence, corporate restructuring is a comprehensive process by which a company can consolidate its business operations and strengthen its position for achieving its short-term and long-term corporate objectives. Corporate restructuring is vital for survival of a company in competitive environment.

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. To eliminate competition between the companies.

Amalgamation Merger Demerger Reverse Merger Joint Venture Takeover/Acquisition

Amalgamation is a legal process by which two or more companies are joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company loses its existence and its shareholder become the shareholder of the new or amalgamated company

AMALGAMATION

MERGERS

When we use the term "merger", we are referring to the merging of two companies where one new company will continue to exist . Merger is a tool used by companies for the purpose of expanding their operations often aiming at an increase of their long term profitability. It is a combination of two or more business enterprises into a single enterprise Mergers can be of three types; namely:

Horizontal Mergers b) Vertical Mergers: c) Conglomerates merger

a)

A horizontal merger is when two companies competing in the same market merge or join together. Two firms are merged across similar products or services. Horizontal mergers are often used as a way for a company to increase its market share by merging with a competing company. For example, the merger between Exxon and Mobil will allow both companies a larger share of the oil and gas market.

Horizontal Mergers

A merger between two companies producing different goods or services for one specific finished product. By directly merging with suppliers, a company can decrease reliance and increase profitability Two firms are merged along the value-chain, such as a manufacturer merging with a supplier. For example, Merck, a large manufacturer of pharmaceuticals, merged with Medco, a large distributor of pharmaceuticals, in order to gain an advantage in distributing its products.

Vertical mergers

Conglomerate:

Two firms in completely different industries merge, such as a gas pipeline company merging with a high technology company. Conglomerates are usually used as a way to smooth out wide fluctuations in earnings and provide more consistency in longterm growth This type of merger involves mergers of corporates in unrelated lines of businesses activity For example, General Electric (GE) has diversified its businesses allowing GE to get into new areas like financial services and television broadcasting In which two activities are involved :Product extension mergers Market extension mergers Every

Demerger

Demerger or break up of companies is an option that could proved just as profitable as engaging in a mergers .The spitting of a business unit from its parent can produced many benefits as well as allow shareholders to get more accurate financial information separating a business unit from its parent company could reduce the internal competition that occurs for company funds. . The demerger of the Reliance group is by far the biggest corporate restructure story in the private sector.

Reverse merger

Reverse merger is an alternative method for private companies to become public, without going through the long and convoluted process of traditional Initial Public Offering. In a reverse merger, a private company acquires a public entity by owning the majority shares of the public entity .The private company takes on the corporate structure of the public entity, with its own company name. Reverse mergers allow a private company to become public without raising capital, which considerably simplifies the process.

Takeover/Acquisition

An acquisition, also known as a takeover, is the buying of one company (the target) by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a smaller firm by a larger one. The objective is to consolidate and acquire large share of the market. Types of Takeover: a) Friendly or Negotiated Takeover: Friendly takeover means takeover of one company by change in its management & control through negotiations between the existing promoters and prospective investor in a friendly manner. Thus it is also called Negotiated Takeover. This kind of takeover is resorted to further some common objectives of both the parties. b) Bail Out Takeover: Takeover of a financially sick company by a financially rich company as per the provisions of Sick Industrial Companies, to bail out the former from losses. c) Hostile takeover: Hostile takeover is a takeover where one company unilaterally pursues the acquisition of shares of another company without being into the knowledge of that other company. The most dominant purpose which has forced most of the companies to

Motives behind M&A:-

These motives are considered to add shareholder value: Economies of scale: This refers to the fact that the combined company can often reduce duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit.

Increased revenue/ Market Share: This motive assumes that the company will
be absorbing a major competitor and thus increase its power to set prices.

Cross selling: For example, a bank buying a stock broker could then sell its

banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts.

Synergy: Better use of complementary resources. Taxes: A profitable company can buy a loss maker to use the target's loss as
their advantage by reducing their tax liability.

Diversification: While this may hedge a company against a downturn in an

individual industry it fails to deliver value, since it is possible for individual shareholders to achieve the same hedge by diversifying their portfolios at a much lower cost than those associated with a merger.

Advantages of M&A

Revenue enhancement Cost reductions Lower taxes A lower cost of capital

Drawbacks 0f M&A

Costs of mergers and acquisitions Legal expenses Short-term opportunity cost Diversification Lack of research Size Issues

Restructuring Methods

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 beunder valuing 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.

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 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.

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 and capital. Once they are set free, managers can explore new opportunities.

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. 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

Merger is considered to be a process when two or more companies come together to expand their business operations Ina merger two companies of same size combine to increase their strength and financial gains along with breaking the trade barriers In case of a merger there is a friendly association where both the partners hold the same percentage of ownership and equal profit share

When one company takes over the other and rules all its business operations, it is known as acquisitions Another difference is, in an acquisition usually two companies of different sizes come together to combat the challenges of downturn A deal in case of an acquisition is often done in an unfriendly manner, it is more or less a forceful or a helpless association where the powerful company either swallows the operation or a company in loss is forced to sell its entity