CR
UNIT 1CORPORATE RESTRUCTURING: INTRODUCTION AND CONCEPTS Q1) Explain the history of corporate restructuring.A1)Looking at the contemporary Indian context what we find is that most companies are in the throes of intense change. More often we find the older companies restructuring as these were the ones which diversified excessively in the first case. Newer companies set up in the 1990 and in the new Millennium, do not find much need for restructuring. But this does not mean that these companies can afford to be complacent. They too need to be on the guard and continuously assess the assumptions and mental models they use to devise their organizations and strategies. In 1994 survey on corporate restructuring carried out by the National Management Forum of the All India Management Association noted that such restructuring had been a continuous process but accelerated after 1991 when the liberalization process started. The major reason for restructuring was the introduction of new economic policies in India such as removal of industrial licensing and lowering of import duties. The main outcome expected from restructuring was gaining customer focus. That the liberalization process provides the thirst for corporate restructure is seen in almost all cases. For instance an in-depth study on corporate restructuring at Crompton Greaves concerned with organizational and process restructuring points to economic liberalization as the major catalyst for restructuring.Q2) WRITE THE MEANING OF CORPORATE RESTRUCTURING.A2) Restructuring as per Oxford dictionary meA” to give a new structure to, rebuild or rearrange” Restructuring as per Cambridge dictionary meA” the act of organizing a company, business or a system in a new way to make it operate more effectively.”Corporate restructuring is defined as the process involved in changing the organization of a business. Corporate restructuring can involve making dramatic changes to a business by cutting out or merging departments. Corporate restructuring implies rearranging the business for increased efficiency and profitability.It is an action taken by the corporate entity to modify its capital structure or its operations significantly. Generally, corporate restructuring happens when a corporate entity is experiencing significant problems and is in financial jeopardy. In corporate restructuring , the financial structure and organizational structure of the entity need to rearrange or rebuild to achieve the some objectives. Financial restructuring may take place due to a drastic fall in the sales because of adverse economic conditions. For example, X Limited has surplus funds but it is not able to consider any viable projects for their business entity. Whereas Z Limited identified viable projects but has no money to fund the cost of the project. The Merger of X Limited and Y Limited is a mutually beneficial option and would result in positive synergies of both the companies. Q3) DISCUSS THE NEED AND SCOPE OF CORPORATE RESTRUCTURING.A3) The scope of corporate restructuring encompassesCost reduction- it allows to leverage the same to its own advantage by being able to raise larger funds at lower costs. Improving efficiency: reducing the cost of capital relates into profits. Availability of funds: it allows the entities to grow in all levels and become more competitive. Risk reduce: corporate restructuring helps to reduce risk. The various needs for undertaking corporate restructuring are as under : To focus on core strengths, operational synergy and efficient allocation of managerial capabilities and infrastructure. Consolidation and economies of scale by expiation and diversion to exploit extended domestic and global markets. Revival and rehabilitation of a sick unit by adjusting losses of the sick unit with profits of a healthy units. Acquiring constant supply of raw materials and access to scientific research and technological developments. Capital restructuring by appropriate mix of loan and equity capital to reduce the cost of servicing and improve return on capital employed. Q4) WHAT ARE VARIOUS IMPORTANT ASPECTS TO BE CONSIDERED WHILE PLANNING OR IMPLEMENTING CORPORATE RESTRUCTURING?A4) The corporate restructuring process requires various aspects to be considered before, during and after the restructuring which are as undera) Valuation and fundingb) Legal and procedural issuesc) Taxation and stamp duty aspectsd) Accounting aspectse) Competition aspectsf) Human and cultural synergies.After analyzing pros and cons of each aspect, a right type of business strategy is chosen which will be fit and profitable for the business. Q5) DISCUSS ABOUT THE VARIOUS FORMS OF CORPORATE RESTRUCTURING.A5) Corporate restructuring are the following types:MERGER: Merger is the combination of two or more companies which can be merged together either by way of amalgamation or absorption or by forming a new company. Mergers may be a) Horizontal Merger: It is a merger of two or more companies that compete in the same type of industry. Maruti Suzuki is one of the best example for horizontal merger where both the company deals in car manufacturing.b) Vertical merger: It is a merger of two companies which are operating in the same industry but at different stages of production or distribution system. For example a cotton supplier and textile manufacturer company if getting merge it will be vertical merger. c) Co generic merger: It is a type of merger where two or more companies are in the same or related but do not offer the same products, but related products and may share similar distribution channel.d) Conglomerate merger: These merger involve firms engaged in unrelated type of business. 2. DEMERGER: The corporate restructuring where the business operations are segregated into one or more components. For example Hero and Honda , earlier it was merged company known as Hero-Honda. 3. REVERSE MERGER: It is the opportunity for the listed companies to become public listed company without opting initial public offer. In this process the private company acquires the majority shares of the public company with its own name. 4. DISINVESTMENT: It meA the action of an organization or government to sell or liquidate an asset or subsidiary to private entities where the government have more than 51% share in that PSUs.The word, Disinvestment generally used in the context of public sector undertakings. For example VSNL to Tata group, Indian petrochemicals corporation Limited to Reliance industries Limited. 5. TAKEOVER/ACQUISITION: It meA an acquirer takes over the control over the target company. This type of acquisition takes place to achieve the market supremacy. For example, Vodafone Hutch- Essar, Tata and Corus steel, 6. JOINT VENTURE (JV): A joint venture is an entity formed by two or more companies to undertake financial activity together. The parties agree to contribute equity to form a new entity and share the revenues, expenses, and control of the company. 7. STRATEGIC ALLIANCE: Any agreement between two or more parties to collaborate with each other, in order to achieve certain objectives while continuing to remain independent organizations is called strategic alliance. For example, HP & Disney, Spotify and Uber, etc 8. FRANCHISING: It is an arrangement where one party grants another party the right to use the trade name as well as certain business systems and processes, to produce and market goods or services according to certain specifications. The franchisee usually pays onetime fee plus a percentage of sales revenue as royalty and gains to the franchiser. For example, McDonald’s, Dominos, KFC, Pizza Hut, Taco Bell, Baskins Robbins etc. 9. SLUMP SALE: Slump sale meA the trAfer of one or more undertakings as a result of the sale of lump sum consideration without values being assigned to the individual assets and liabilities in such sales. A slump sale must satisfy the following points-a) Business is sold off as a whole and as a going concernb) Sale for a lump sum considerationc) Materials available on record do not indicate item wise value of the asset trAferred.
0 matching results found