FINANCIAL SERVICES

PRESENTATION ON CORPORATE RESTRUCTURING

SUBMITTED TO :- SHRUTI AURORA maam SUBMITTED BY :- ROHIT ARORA B.B.A. Vth sem 25.

INSTITUTE OF MANAGEMENT SCIENCES

5/6/12

UNIVERSITY OF LUCKNOW

ACKNOWLEDGEMENT
It gives a great sense of pleasure the assignment of FINANCIAL SERVICES undertaken during BBA 5thSEM. I owe a special debt of gratitude to SHRUTI AURORA MAAM for her constant support and guidance throughout the course of work. Her sincerity, thoroughness, perseverance have been a constant source of inspiration for us.
5/6/12

INDEX.
1) 2) 3) 4) 5) 6) 7)

Introduction Characterstics Expansions Synergy Advantages Disadvantages References

5/6/12

INTRODUCTION

Activities related to expansion and contraction of firms operations or changes in its assets or financial or ownership structure are referred to as corporate restructuring.

Restructuringacorporateentity is often a necessity when the company has grown to the point that the original structure can no longer efficiently manage the output and general interests of the company.

For example, acorporaterestructuringmay call for spinning off some departments into 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 divert more revenue to the production process.
5/6/12

CHARACTERSTICS

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) 5/6/12

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 of labor contracts to reduce overhead 5/6/12 Refinancing of corporate debt to reduce

EXPANSIONS

Expansions include mergers, consolidations, acquisitions and various other activities which result in an enlargement of a firm or its scope of operations. There is a lot of ambiquity in the usage of the terms associated with corporate expansions. 1> AMergerinvolves a combination of two firms such that only one firm survuves. Mergers tend top occur when one firm is significantly larger than the other and the survivor is usally the larger of the two.A Merger can take the form of : Horizontal mergerinvolves two firms in similar businesses. The combination of two oil companies or two solid waste disposal companies, for example would represent horizontal mergers.

Vertical mergersinvolves two firms involve in different stages of production of the same end product or related end product. Conglomerate mergersinvolves two firms in unrelated business
5/6/12

2> Aconsolidationsinvolves the creation of an altogether new firm owning the assets of both of the first two firms and neither of the first two survive. This form of combination is most common when the two firms are of approximately equal size.

3> Thejoint ventures, in which two separate firms pool some of their resources, is another such form that does not ordinarily lead to the dissolution of either firm. Such ventures typically involve only a small portion of the cooperating firms overall businesses and usually have limited lives.

4> The termacquisitionsis another ambiguous term. It means an attempts by one firm, called the acquiring firm to gain a majority interest in another firm called the target firm. The effort to gain control may be a prelude to a subsequent merger to establish a parent subsidiary relationship, to break up the target firm and dispose of its assets or to take the target firm private by a small gropu of investots.
5/6/12

Contractions -> Contraction, as the term implies, results in a maller firm rather than a larger one. If we ignoe the abondanment of assets, occasionally alogical course of action, coporate contraction occurs as the result of disposition of assets. The disposition of assets, sometimes called sell-offs, can take either of three board form:

*Spin-offs *Divestitures *Carve outs.

Spin-offs and carve outs create new legal entities while divestitres do not.

Ownership and Control :->

The third major area encompassed by the term corpoate restructuring is that of ownership and control. It has been wrested from the current board, the new management willl often embark on a full or partial liquidation strategy involving the sale of assets. Whether a purchase is considered a merger or an acquisition really 5/6/12 depends on whether the purchase is friendly or hostile and how it

Synergyis the magic force that allows for enhanced cost efficiencies of the new business. Synergy takes the form of revenue enhancement and cost savings. By merging, the companies hope to benefit from the following:

SYNERGY

Staff reductions - As every employee knows, mergers tend to mean job losses. Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments. Job cuts will also include the former CEO, who typically leaves with a compensation package. Economies of scale- Yes, size matters. Whether it's purchasing stationery or a new corporate IT system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies when placing larger orders, companies have a greater ability to negotiate prices with their suppliers. Acquiring new technology- To stay competitive, companies need to stay on top of technological developments and their business applications. By buying a smaller company with unique 5/6/12 technologies, a large company canmaintain or developa

ADVANTAGES

The rationale behind aspinoff,tracking stockorcarve-outis that "the parts are greater than the whole." These corporate restructuring techniques, which involve the separation of abusinessunit or subsidiary from the parent, can help a company raise additionalequity funds.

A break-up can also boost a company's valuation by providing powerful incentives to the people who work in the separating unit, and help the parent's management to focus on core operations. Most importantly, shareholders get better information about the business unit because it issues separatefinancial statements. This is particularly useful when a company's traditional line of business differs from the separated business unit. With separate financial disclosure, investors are better equipped to gauge the value of the parent corporation.

The parent company might attract more investors and, ultimately, more capital. Also, separating a subsidiary from its parent can reduce internal competition for corporate funds. For investors, that's great news: it curbs the kind of negative internal wrangling that can compromise the unity and productivity of a company. 5/6/12

DISADVANTAGES

That said, de-merged firms are likely to be substantially smaller than their parents, possibly making it harder to tap credit markets and costlier finance that may be affordable only for larger companies. And the smaller size of the firm may mean it has less representation on majorindexes, making it more difficult to attract interest from institutional investors.

Meanwhile, there are the extra costs that the parts of the business face if separated. When a firm divides itself into smaller units, it may be losing thesynergythat it had as a larger entity. For instance, the division of expenses such as marketing, administration andresearch and development(R&D) into different business units may cause redundant costs without increasing overall revenues.
5/6/12

REFERENCES

http://www.mhb-counsel.com/corporate.php

http://www.caclubindia.com/articles/types-of-corporate-restructuring

http://www.thinkingmanagers.com/business-management/corporatehttp://www.wisegeek.com/what-is-corporate-restructuring.htm

http://books.google.co.in/books?id=8vC1M3BeejoC&printsec=frontco http://www.indianmba.com/Faculty_Column/FC699/fc699.html FINANCIAL SERVICES- BY M.Y.KHAN.

the end.

5/6/12