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Prasad G. Godbole
Copyright 2009 Vikas Publishing House Pvt. Ltd. All rights reserved. Prasad G. Godbole. All rights reserved.
Copyright 2009 Vikas Publishing House Pvt. Ltd. All rights reserved. Prasad G. Godbole. All rights reserved.
Copyright 2009 Vikas Publishing House Pvt. Ltd. All rights reserved. Prasad G. Godbole. All rights reserved.
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Wise organizations undertake changes to increase their cutting edge over the competitors and enhance their leadership position.
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However, not all the changes that a company undergoes would qualify to be termed as corporate restructuring.
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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
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Corporate Restructuring
I.
(a) Any change in the business capacity or portfolio carried out by inorganic route
Tata Motors launched Sumo and later, Indica- leading to an expansion of its business portfolio. However, these products were launched from Tata Motors own manufacturing capacity in through an organic route. Hence, it would not qualify as corporate restructuring Tata Motors acquisition of Jaguar Land Rover from Ford, through Jaguar Land Rover Limited is corporate restructuring Grasims acquisition of Larsen & Toubros (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, the demerger of L&Ts cement business into UltraTech Cement Limited was reduction of its business portfolio and thus, amounted to corporate restructuring of L&T.
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Corporate Restructuring
II.
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, i.e. the proportion of debt and equity in the total capital of a company. This capital structure is never static and changes almost daily. Within a targeted or planned range if the debt/equity ratio fluctuates, such changes in the capital structure do not amount to capital restructuring. Borrowing of a significant amount of term loan or an issue of five year nonconvertible debenture do not qualify to be called corporate restructuring . An initial public issue, or a follow-on public issue or buy-back of equity shares would permanently alter the capital structure of a company, and thus, would amount to corporate restructuring.
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Corporate Restructuring
III.
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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.
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With businesses having become more complex along with the acceptance of newer concepts of organization building such as tutorship, mentorship, etc., the hierarchies have stopped strictly falling into one of the three types mentioned in the earlier slide. 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.
III.
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IV.
Downsizing
It is another form of organizational change in which the business organization substantially cuts down on its manpower, recurring cost and/or capital expenditure, either as an objective itself or as a result of reengineering. Downsizing is also outside the purview of corporate restructuring.
V.
Other activities
Activities such as outsourcing, enterprise resource planning, total quality management, franchising alliances, networking alliances and licensing do not classify as corporate restructuring activities.
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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