Corporate Restructuring

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Corporate Restructuring

• By
• Bharat Sai Kiran
• Ashok Lahoty

2
Forms of Corporate Restructuring

• Expansion
• Mergers and Acquisitions
• Tender Offers
• Asset Acquisition
• Joint Ventures
• Contraction
• Spin offs
• Split offs
• Divestitures
• Equity carve-outs
• Assets sale
• Corporate Control
• Takeover defenses
• Share repurchases
• Exchange offers
• Proxy contests

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Expansion

• Expansion is a form of restructuring, which
  results in an increase in the size of the firm.
  It can take place in the form of a merger,
  acquisition, tender offer, asset acquisition or a
  joint venture.

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Mergers

• Merger is defined as a combination of two or more
  companies into a single company
• Amalgamation is the type of merger that involves
  fusion of two or more companies. After the
  amalgamation, the two companies loose their
  individual identity and a new company comes into
  existence. This form is generally applied to
  combinations of firms of equal size.

A
B
AB
Brooke Bond Lipton India Ltd
Brooke Bond India Ltd
Lipton India Ltd
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This would also be by far the most valuable in
the business, with a market capitalization of
about 135 billion. The companies described the
deal as a merger, valuing it at 140 billion, but
the mechanism is essentially a stock swap, with
Travelers paying 70 billion for Citi's shares.
Travelers will issue 2.5 shares for each Citicorp
share, and current stockholders of each company
will own about half of the new enterprise.

• Citicorp

• Travelers Plan

• 2nd Largest Commercial Bank in USA
• Worlds Leading distributor of credit cards
• Issuing 60 Million Bank Cards

• Financial conglomerate that offers insurance and
  investment banking services.
• 698 billion of assets

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Acquisition

• A corporate action where an acquiring company
  makes a bid for an acquiree. If the target
  company is publicly traded, the acquiring company
  will make an offer for the outstanding shares
• Absorption is a type of merger that involves
  fusion of a small company with a large company.
  After the merger the smaller company ceases to
  exist.

A
A
B
Oriental Bank Of Commerce
Global Trust Bank
Oriental Bank Of Commerce
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Joint Venture

• Cooperation between two or more companies in
  which the purpose is to achieve jointly a
  specified business goal. Upon the attainment of
  the goal, the joint venture is terminated. A
  joint venture, which is typically limited to one
  project, differs from a partnership that can work
  jointly on many projects.

A
B
AB
Honda
Hero Honda
Hero Motor Corp
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Tender Offer

• Tender offer is a corporate finance term denoting
  a type of takeover bid. The tender offer is a
  public, open offer or invitation (usually
  announced in a newspaper advertisement) by a
  prospective acquirer to all stockholders of a
  publicly traded corporation (the target
  corporation) to tender their stock for sale at a
  specified price during a specified time, subject
  to the tendering of a minimum and To induce the
  shareholders of the target company to sell, the
  acquirer's offer price usually includes a premium
  over the current market price of the target
  company's shares. maximum number of shares.

B
A
C
D
E
Public Offer
F
G
H
I
J
K
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Example ---- Tender Offer

• Flextronics International giving an open market
  offer at Rs. 548 for 20 of paid up capital in
  Hughes Software Systems.
• AstraZenca Pharmaceuticals AB, a Swedish firm,
  announced an open offer to acquire 8.4 stake in
  AstraZenca Pharma India at a floor price of Rs.
  825 per share.

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Asset Acquisition

• A buyout strategy in which key assets of the
  target company are purchased, rather than its
  shares. These assets may be tangible assets like
  a manufacturing unit or intangible assets like
  brands. This is particularly popular in the case
  of bankrupt companies, who might otherwise have
  valuable assets which could be of use to other
  companies, but whose financing situation makes
  the company un-attractive for buyers

A
A
B
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Examples ---- Asset Acquistion

• The acquisition of the cement division of Tata
  Steel by Laffarge of France. Laffarge acquired
  only the 1.7 million tonne cement plant and its
  related assets from Tata Steel.
• The asset being purchased may also be intangible
  in nature. For example, Coca-Cola paid Rs.170
  crore to Parle to acquire its soft drinks brands
  like Thums Up, Limca, Gold Spot etc.
• Google acquired the Motorola for its new open
  source operating system Android for the need of
  Motorolas 17000 patents out of which Google
  needs around 6000 patents.
• M3M India acquired DLF 28- Acre Plot in Gurgaon
  as non core assets for Rs 440 Cr.

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Forms of Corporate Restructuring

• Expansion
• Mergers and Acquisitions
• Tender Offers
• Asset Acquisition
• Joint Ventures
• Contraction
• Spin offs
• Split offs
• Divestitures
• Equity carve-outs
• Corporate Control
• Takeover defenses
• Share repurchases
• Exchange offers
• Proxy contests

13
Contraction

• Contraction is a form of restructuring, which
  results in a reduction in the size of the firm.
  It can take place in the form of a
• Spin-off,
• Split off,
• Divestiture
• Equity carve-out.

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Spin-off

• A Company distributes all the shares it owns in a
  subsidiary to its own shareholders implying
  creation of two separate public companies with
  same proportional equity ownership. Sometimes, a
  division is set up as a separate company. Hence,
  the stockholders proportional ownership of shares
  is the same in the new legal subsidiary as well
  as the parent firm. The new entity has its own
  management and is run independently from the
  parent company. A spin-off does not result in an
  infusion of cash to parent company.

Shareholders of Company A also has shares of
Company B
Shareholders of Company A
A
B
A
B
B
Subsidiary Company of A
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Examples ----- Spin-off

• Air-India has formed a separate company named
  Air-India Engineering Services Ltd., by
  spinning-off its engineering division.
• Guidant was spun out of Eli Lilly and Company in
  1994, formed from Lilly's Medical Devices and
  Diagnostics Division.
• Agilent Technologies spun out of Hewlett-Packard
  in 1999, formed from HP's former
  test-and-measurement equipment division.
• Cenovus Energy was spun out of Encana Corporation
  in 2009
• Shugart Associates was a spin-out of IBM.

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Split- off

• In a split off, a new company is created to
  takeover the operations of an existing division
  or unit. A portion of existing shareholders
  receives stock in a subsidiary (new company) in
  exchange for parent company stock Hence the
  shareholding of the new entity does not reflect
  the shareholding of the parent firm. A split-off
  does not result in any cash inflow to the parent
  company

Shareholders of Company A
Shareholders of Company A
Shareholders of Company B
Shareholders of Company A
A
D
New Company
A
B
F
E
D
C
F
E
C
D
Operations of Company A
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Split-UP

• In a split-up the entire firm is broken up in
  series of spin-offs, so that the parent company
  no longer exists and only the new off springs
  survive. A split-up involves the creation of a
  new class of stock for each of the parents
  operating subsidiaries, paying current
  shareholders a dividend of each new class of
  stock, and then dissolving the parent company.

Shareholders of Company A will get shares of
Shareholders of Company A
A
A
E
D
C
B
B
C
D
E
Subsidiary Companies of A
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Examples ------ Split-UP

• The Andhra Pradesh State Electricity Board
  (APSEB) was split-up in 1999 as part of the Power
  Sector reforms. The power generation business and
  the transmission and distribution business has
  transferred to two separate companies called
  APGENCO and APTRANSCO respectively. APSEB ceased
  to exist as a result of split-up.

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Divestitures

• A divestiture is a sale of a portion of the firm
  to an outside party, generally resulting in an
  infusion of cash to the parent. A firm may choose
  to sell an undervalued operation that it
  determines to be non-strategic or unrelated to
  the core business and to use the proceeds of the
  sale to fund investments in potentially higher
  return opportunities.

Some Operations of A
Operations of A
Cash
B
A
Operations
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Equity Carve Out

• A parent has substantial holding in a subsidiary.
  It sells part of that holding to the public.
  "Public" does not necessarily mean a shareholder
  of the parent company. Thus the asset item
  "Subsidiary Investment" in the balance-sheet of
  the parent company is replaced with cash. Parent
  company keeps control of the subsidiary but gets
  cash.

A
Investors
Issues IPO of B 20 Shares of B
CCashA
B
20 Shares of Company B
Subsidiary Company of A
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Forms of Corporate Restructuring

• Expansion
• Mergers and Acquisitions
• Tender Offers
• Asset Acquisition
• Joint Ventures
• Contraction
• Spin offs
• Split offs
• Divestitures
• Equity carve-outs
• Assets sale
• Corporate Control
• Takeover defenses
• Share repurchases
• Exchange offers
• Proxy contests

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Corporate Control

• Firms can also restructure without necessarily
  acquiring new firms or divesting existing
  corporations. Corporate control involves
  obtaining control over the management of the
  firm. Control is the process by which managers
  influence other members of an organization to
  implement the organizational strategies

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Takeover Defenses

• Takeover defenses, both pre-bid and post-bid have
  been resorted to by the companies.
• Pre Bid This defense is also called preventive
  defense it is employed to prevent a sudden,
  unexpected hostile bid from gaining control of
  the company.
• Post Bid When preventive takeover defenses are
  not successful in fending off an unwanted bid,
  the target implements post-bid or active defenses
• These takeover defenses intend to change the
  corporate control position of the promoters.

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Preventive Measures

• Green Mail
• White Knight

Stock Market
Buy Back Of its Shares at Premium Price
A
Good Bye, Sweet Kisses to Share Holders
I Want to Acquire You
Acquire me Plzzzz
A
B
C
No Thanks C is Acquiring me
Ok, I will pay premium to ur Share Holders
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Contd

• White Squire
• Recapitalization

I Want to Acquire You
Acquire me Plzzzz
A
B
C
B
No Thanks C is Acquiring me
Ok, I will Acquire Lesser part from U.
Buy Back Of its Shares at Premium Price
Banks Or Investors
Stock Market
A
Lending Money
OR
Paying More as Dividends
A is acting as its Own White Knight
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Forms of Corporate Restructuring

• Expansion
• Mergers and Acquisitions
• Tender Offers
• Asset Acquisition
• Joint Ventures
• Contraction
• Spin offs
• Split offs
• Divestitures
• Equity carve-outs
• Assets sale
• Corporate Control
• Takeover defenses
• Share repurchases
• Exchange offers
• Proxy contests