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Home » Finance Homework Help » Corporate Restructuring
Corporate Restructuring
Corporate restructuring refers to the changes in ownership, business max, assets mix and alliances with a view to enhance the shareholder value. Hence, corporate restructuring may involve ownership restructuring, business restructuring and assets restructuring. A company can affect ownership restructuring through mergers and acquisitions, leveraged buy-outs buyback of share spin-offs, joint ventures and strategic alliances. Business restructuring involves the reorganization of business units or divisions. It includes diversification into new businesses, out-sourcing, divestment; brand acquisitions etc. asset restructuring involves the acquisition or sale of assets and their ownership structure. The examples of assets restructuring are sale and leaseback of assets, securitization of debt, receivable factoring etc.

Why so mergers take place? It is believed that mergers and acquisitions are strategic decisions leading to the maximization of a company’s growth by enhancing its production and marketing operations. They have become popular in the recent times because of the enhanced competition, breaking of trade barriers, free flow of capital across countries and globalization of business as a number of economies are being deregulated and integrated with other economies. Economic reforms and deregulation of the Indian economy has brought in more domestic as well as international players in Indian industries. This has caused increased competitive pressure leading to structural changes of Indian industries. M&A is a part of the restructuring strategy of Indian industries. The first M&A wave in India took place towards the end of 1990s.

The total number of mergers in 2003-04 was 284, down from 381 mergers in the previous period. Form data in it appears that mergers account for around one-third of total M$A deals in India. It implies that takeovers or acquisitions are the dominant feature of M&A activity in India, similar to the trend in most of the developed countries. Along with the rise in M&A, there has also an increase in the number of open offers albeit at al lower pace. The number of open offers rose to 109 in 2002-03 from 58 in 1998-99. In 2003-04, 72 open offers involved $1,122 crore-much less than as compared to the precious year.

Are there any real benefits of merger? A number of benefits of mergers are claimed. All of them are not real benefits. Based on the empirical evidence and the experiences of certain companies, the most common motives and advantages of mergers and acquisition are explained below:

1. Maintaining or accelerating a company’s growth particularly when the internal growth is constrained due to paucity or resources.
2. Enhancing profitability, through cost reduction resulting from economies of scales, operating efficiency and synergy.
3. Diversifying the risk of the company, particularly when it acquires those businesses whose income streams are not correlated.
4. Reducing tax liability because of the provision of setting off accumulated losses and unabsorbed depreciation of one company against the profits of another’
5. Limiting the severity of competition by increasing the company’s market power.

Some of its main topics are:

1. inancing a merger
2. merger or amalgamation
3. mergers and acquisitions
4. mergers procedures and negotiations
5. post-merger integration
6. regulations of mergers and takeovers in India
7. accelerated growth and defensive tactics
8. corporate strategy and restructuring
9. diversification of risk
10. divestment
11. enhanced profitability
12. LBO targets and market power
13. planning acquisitions and DCF approach
14. reduction in tax liability
15. tender offer and hostile takeover

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