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Corporate Restructuring

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.

Cont..
Companies are dramatically restructuring their:
Assets
Operations
Relationship with stakeholders
Corporate restructuring facilitates organizations
to re-establish their competitive advantage
and respond more quickly and effectively to
new
opportunities
and
unexpected
challenges.

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

Corporate Restructuring
Definition
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

Organic Vs. Inorganic Growth


Organic Growth is the rate of a business expansion
through

companys

own

business

activity,

while

Inorganic Growth means that the company has grown by


merger, acquisitions or takeovers.

When a company with help of its efficient management


enhances its growth rate it is referred to as organic
growth which is also known as Internal Growth whereas
inorganic growth is attained when a company acquires a
technology developing company in order to enhance its
competitive advantage and growth rate and is also known
as External Growth.

Cont..
Inorganic growthis the rate of growth
ofbusiness, sales expansion etc. by increasing
output and business reach by acquiring new
businesses by way ofmergers,acquisitions and
takeovers.
This kind of growth also takes place due to
government directives, leading to enhancement
of business in some identified priority
sector/area.
The inorganic growth rate also factors in the
impact of foreign exchange movements or
performance of other economies.

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

Cont..
(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.

Cont
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 non-convertible 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,
restructuring.

and thus, would amount to corporate

Cont..
III.

Any change in the ownership of a company or


control over its management

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.

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
Corporate Debt Restructuring

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