TOPIC:FINANCIAL

RESTRUCTURING

CONTENTS:• Concept of Restructuring • Modes of Restructuring• Value Creation.

Members : Group 1• Nidhin Jose• Jerin Karol • Noel Sam Abraham• N.Achuthan Unni.

CORPORATE RESTRUCTURING

• Restructuring is the corporate management term for the

act of partially dismantling and reorganizing a company

for the purpose of making it more efficient and therefore

more profitable.

• It generally involves selling off portions of the company

and making severe staff reductions.

• Restructuring is often done as part of a bankruptcy or of

a takeover by another firm, particularly a leveraged

buyout by a private equity firm.

THE CHARACTERISTICS :

• Changes in corporate management 

• Sale of underutilized assets, such as patents or brands 

• Outsourcing of operations such as payroll and technical

support to a more efficient third party 

• Moving of operations such as manufacturing to lower-cost

locations 

• Reorganization of functions such as sales, marketing, and

distribution 

• Renegotiation of labor contracts to reduce overhead 

• Refinancing of corporate debt to reduce interest payments 

• A major public relations campaign to reposition the company

with consumers 

• Forfeiture of all or part of the ownership share by pre

restructuring stock holders

HOW TO RESTRUCTURE..?

• Under-capitalized company:

Injecting more capital through rights issue or follow-on

public issue

Resorting to additional borrowing from financial

institutions, banks etc.

Issuing Bonds/ Debentures

Accepting Deposits

• Over – capitalized company:

Buy-back of shares

Repaying Loans

Repay fixed deposits to public

Redeeming its debentures

TYPES:

• Portfolio Restructuring: It involves divesting some lines

of business which are considered peripheral to the long-

term strategy.

E.g. Divestiture, asset sales, Spin –offs.

• Financial Restructuring: It means infusion of debt,

happens due to leveraged buy-out or buy back stock

from equity or one-time payment of dividend.

E.g. – Equity carve-out, Equity carve-in, Tax-free

deals

• Organizational Restructuring: It involves changes in the

organizational structure to increase efficiencies.

E g: Down sizing, realigning of business units.

FINANCIAL RESTRUCTURING

• It involves re-arrangement of an Organization’s capital structure to make the company’s finances more balanced.

• It also includes re-structuring the assets & liabilities of an organization • In line with the cash flow needs• In order to promote efficiency & support growth• Give maximum value to the shareholders.

MODES OF RESTRUCTURING

• Expansions

• Sell – offs

• Changes in ownership structure

EXPANSIONS:

• Mergers & Acquisitions :

• It is a tool used by the companies for expanding their

business operations often aiming at increase in their long-

term profitability.

• When one company take over another and clearly establish

itself as a newcomer, the purchase is called acquisition.

• Tender offer::

• A method of effecting a takeover through a public offer to

target firm share-holders to buy their shares.

• Joint venture:

• A combination of subsets of assets contributed by 2 or

more business entities for a specific purpose and a limited

duration

SELL OFFS

• Divestiture : It involves the disposal of ownership interest in

a company or subsidiary in exchange of other forms of assets.

• Equity carve out : When a parent company sells equity of its

subsidiary, the subsidiary becomes an independent entity.

• Spin offs: This involves creating a new entity, but the new

shares are issued to the existing shareholders on a pro-rata

basis. A spin off does not provide the parent company with

additional funds.

• Split off: In this case some shareholders get shares in a

division of the parent company in exchange for their shares in

the parent company.

• Split-up: The parent company is broken up into several spin-

offs and ceases to exist as an entity.

CHANGES IN OWNERSHIP STRUCTURE

• Going private: It refers to transformation of a public

corporation in to private held firm

• Exchange offer: An exchange offer provides one or more

classes of securities, the right or option to exchange part or all

of their holdings for a different class of securities of the firm.

• LBO: LBO are structured transactions where a company or

sponsor , that is proposing the investment creates or uses

another company or vehicle to borrow substantially to fund the

project.

• Buyback of Shares: It is the repurchase of the equity once

offered by the company..

RESTRCUTURING & VALUE CREATION

THE HURDLES :

• Design

• Execution

• Marketing

Value of Business:

Asset

Culture

Integration of Various Resources

Area of Operation

Equity

Debt

Value of Organization:

Changes in Leadership

Financial Differences

Effect of Taxation

Value of the Firm

It is the present value of all the above - Present value of

Financial Risks