1. Corporate Restructuring Hence, corporate restructuring may involve ownershiprestructuring, business restructuring and assets restructuring.

Corporate restructuring refers to the changes inownership, business mix, assets mix and alliances with a view toenhance the shareholder value. 2. Meaning There is yet another mode of merger. Here one company may purchase another company without giving proportionate ownership to the shareholders of the acquired company or without continuing the business of the acquired company. In merger, there is complete amalgamation of the assets and liabilities as well as shareholders interests and businesses of the merging companies. Merger or amalgamation may take two forms: Absorption Consolidation 3. Forms of Corporate Restructuring1) Merger or Amalgamation 4. Forms of Corporate Restructuring (cont..)Forms of Merger(1) Horizontal Merger Acquisition of a company in the same industry in which the acquiring firm competes increases a firms market power by exploiting 5. (2) Vertical MergerAcquisition of a supplier or distributor of one or more of the firms goods or services (3) Conglomerate Merger Acquisition by any company of unrelated industry A substantial acquisition occurs when an acquiring firm acquires substantial quantity of shares or voting rights of the target company. Acquisition may be defined as an act of acquiring effective control over assets or management of a company by another company without any combination of businesses or companies. 6. Forms of Corporate Restructuring (cont..) 7. Forms of Corporate Restructuring (cont..)Takeover The term takeover is understood to connote hostility. Whenan acquisition is a forced or unwilling acquisition, it is called atakeover.A holding company is a company that holds more than half of thenominal value of the equity capital of another company, called asubsidiary company, or controls the composition of its Board ofDirectors. Both holding and subsidiary companies retain their separatelegal entities and maintain their separate books of accounts. Establish a transnational bridgehead without excessive start-up costs to gain access to a foreign marketGain economies of scale and increase income with proportionately less investment. Achieve diversification. Overcome the problem of slow growth and profitability in ones own industry. Utilise under-utilised market power. Limit competition. 8. Motives of Corporate Restructuring Create an image of aggressiveness and strategic opportunism, empire building and to amass vast economic powers of the company.Reap speculative gains attendant upon new security issue or change in P/E ratio. Circumvent government regulations. Displace existing management. Utilise under-utilised resourceshuman and physical and managerial skills. 9. Motives of Corporate Restructuring (Cont..) 10. Legal Procedures for merger and acquisition Permission for merger Information to the stock exchange Approval of board of directors Application in the High Court Shareholders and creditors meetings Sanction by the High Court Filing of the Court order Transfer of assets and liabilities10 Payment by cash or securities 11. Legal Process of Merger & Acquisition

12. Process (Cont) Approval of Board of Approval of Merger Information to stock Directors ExchangeSanction by High Court Shareholders & Creditors Application in High Court meeting 13. Process (Cont) Filing of Court Order Transfer of Assets & Payment By cash or Liabilities Securities Working capital changes Estimating the Cost of Capital Terminal Value Cor.tax and depreciation: Revenues and expenses In order to apply DCF technique, the following information is required: Estimating Free Cash Flows 14. Methods of ValuationDiscounted Cash flow Method 15. Calculation of financial synergy(1) Pooling of Interests Method: In the pooling of interests method of accounting, the balance sheet items and the profit and loss items of the merged firms are combined without recording the effects of merger. This implies that asset, liabilities and other items of the acquiring and the acquired firms are simply added at the book values without making any adjustments. 16. Calculation of financial synergy (cont..) Particulars Company X Company y After Merger Share Capital 200 240 = 440 Fixed Assets 150 170 = 320 Liabilities 250 200 = 450 Current Assets 250 120 = 370After merger both balance sheet will be combined is calledpooling of interest method 17. Calculation of financial synergy (cont..)(2) Purchase Method Under the purchase method, the assets and liabilities of the acquiring firm after the acquisition of the target firm may be stated at their exiting carrying amounts or at the amounts adjusted for the purchase price paid to the target company. 18. Company X Company XParticularsShare Capital 200 240Fixed Assets 150 170Liabilities 250 200Current Assets 250 120If you paid for the company X Rs. 100 than the value of firm is equal toFirm value = Total Assets total liabilities 150 = 400-250So share capital is shown at Rs.100. and Rs.50 is shown as capital premium Unlocking value Consolidation Disposal of unprofitable businesses Selling cash cows Strategic change 19. DivestitureA divestment involves the sale of a companys assets, or product lines, or divisions or brand to the outsiders.It is reverse of acquisition.Motives: 20. Strategic Alliance A strategic alliance is a voluntary, formal arrangement between two or more parties to pool resources to achieve a common set of objectives that meet critical needs while remaining independent entities.Example A joint venture (JV) is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets ICICI GROUP INDIA PRUDENTIAL GROUP 21. Joint Ventures Sometimes the company might sell its profitable but non-core businesses to ease its liquidity problems. It is a usual practice of a large number of companies to sell-off to divest unprofitable or less profitable businesses to avoid further drain on its resources. When a company sells a part of its business to a third party, it is called sell-off. 22. Sell-off After the spin-off, shareholders hold shares in two different companies. Hence, there is no change in ownership. The spin-off company would usually be created as a subsidiary. When a company creates a new company from the existing single entity, it is called a spin-off. 23. Spin-off

E.g. First company introduce ESOP is Inforsys. An employee stock ownership plan (ESOP) is an employee- owner scheme that provides a companys workforce with an ownership interest in the company. In an ESOP, companies provide their employees with stock ownership, often at no cost to the employees. Shares are given to employees and may be held in an ESOP trust until the employee retires or leaves the company. The shares are then sold. 24. Employee Stock Ownership The evaluation of LBO transactions involves the same analysis as for mergers and acquisitions. The DCF approach is used to value an LBO. Low operating risk firms High liquidity and high debt capacity firms High profit potential firms High growth, high market share firms The following firms are generally the targets for LBOs: A leveraged buy-out (LBO) is an acquisition of a company in which the acquisition is substantially financed through debt. When the managers buy their company from its owners employing debt, the leveraged buy-out is called management buy-out (MBO). 25. Leverage Buy-out (LBO)

Junk bonds, also called high-yield and below-investment-grade securities, are among the riskiest investments in the credit market. But because of that risk, bond issuers must pay higher yields to attract investors. Traditionally the difference between junk bond yields and the yield on U. . Treasuries is !" to #".

Types of Company Mergers

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There are five commonly-referred to types of business combinations known as mergers conglomerate merger! hori"ontal merger! market e#tension merger! vertical merger and product e#tension merger$ The term chosen to describe the merger depends on the economic function! purpose of the business transaction and relationship between the merging companies$

Conglomerate
A merger between firms that are involved in totally unrelated business activities$ There are two types of conglomerate mergers pure and mi#ed$ Pure conglomerate mergers involve firms with nothing in common! while mi#ed conglomerate mergers involve firms that are looking for product e#tensions or market e#tensions$ Example

A leading manufacturer of athletic shoes! merges with a soft drink firm$ The resulting company is faced with the same competition in each of its two markets after the merger as the individual firms were before the merger$ %ne e#ample of a conglomerate merger was the merger between the &alt Disney 'ompany and the American Broadcasting 'ompany$

Horizontal Merger
A merger occurring between companies in the same industry$ (ori"ontal merger is a business consolidation that occurs between firms who operate in the same space! often as competitors offering the same good or service$ (ori"ontal mergers are common in industries with fewer firms! as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry$ Example A merger between 'oca-'ola and the Pepsi beverage division! for e#ample! would be hori"ontal in nature$ The goal of a hori"ontal merger is to create a new! larger organi"ation with more market share$ Because the merging companies) business operations may be very similar! there may be opportunities to *oin certain operations! such as manufacturing! and reduce costs$

Market Extension Mergers

A market e#tension merger takes place between two companies that deal in the same products but in separate markets$ The main purpose of the market e#tension merger is to make sure that the merging companies can get access to a bigger market and that ensures a bigger client base$ Example A very good e#ample of market e#tension merger is the ac+uisition of ,agle Bancshares -nc by the .B' 'entura$ ,agle Bancshares is head+uartered at Atlanta! /eorgia and has 012 workers$ -t has almost 34!444 accounts and looks after assets worth 56 78$8 billion$ ,agle Bancshares also holds the Tucker Federal Bank! which is one of the ten biggest banks in the metropolitan Atlanta region as far as deposit market share is concerned$ %ne of the ma*or benefits of this ac+uisition is that this ac+uisition enables the .B' to go ahead with its growth operations in the 9orth American market$ &ith the help of this ac+uisition .B' has got a chance to deal in the financial market of Atlanta ! which is among the leading upcoming financial markets in the 56A$ This move would allow .B' to diversify its base of operations$

Product Extension Mergers

A product e#tension merger takes place between two business organi"ations that deal in products that are related to each other and operate in the same market$ The product e#tension merger allows the merging companies to group together their products and get access to a bigger set of consumers$ This ensures that they earn higher profits$ Example The ac+uisition of Mobilink Telecom -nc$ by Broadcom is a proper e#ample of product e#tension merger$ Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for -,,, 140$88b wireless :A9$ Mobilink Telecom -nc$ deals in the manufacturing of product designs meant for handsets that are e+uipped with the /lobal 6ystem for Mobile 'ommunications technology$ -t is also in the process of being certified to produce wireless

networking chips that have high speed and /eneral Packet .adio 6ervice technology$ -t is e#pected that the products of Mobilink Telecom -nc$ would be complementing the wireless products of Broadcom$

Vertical Merger
A merger between two companies producing different goods or services for one specific finished product$ A vertical merger occurs when two or more firms! operating at different levels within an industry)s supply chain! merge operations$ Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one$ Example A vertical merger *oins two companies that may not compete with each other! but e#ist in the same supply chain$ An automobile company *oining with a parts supplier would be an e#ample of a vertical merger$ 6uch a deal would allow the automobile division to obtain better pricing on parts and have better control over the manufacturing process$ The parts division! in turn! would be guaranteed a steady stream of business$ 6ynergy! the idea that the value and performance of two companies combined will be greater than the sum of the separate individual parts is one of the reasons companies merger$ Source: http://

Mergers vs. Acquisitions

A discussion about mergers should note that! strictly speaking! true mergers are rare$ A merger occurs when two companies come together as e+uals and form an entirely new company$ Most business combinations billed as ;mergers; are really ac+uisitions %ne company is buying the other and absorbing its operations$ The distinction is mostly technical! though$ -f you own a business and take over a competitor! for e#ample! calling the deal a merger shows deference to and respect for the other company)s employees and former owners$

Horizontal Merger
(ori"ontal mergers involve companies that offer the same products or services to the same kinds of customers$ -f your business mows lawns! for e#ample! and you combine with another lawn-care company in your town! that)s a hori"ontal merger$ (ori"ontal mergers offer ;economies of scale!; meaning that average costs decline as the company does a greater volume of business$ 6uch mergers also increase market share$ And they offer opportunities for cost savings by eliminating redundancies &here the original companies each needed their own purchasing department! advertising budget! benefits program and so on! the merged firm only re+uires one$ Related Reading: Three Types of 'orporate /overnance Mechanisms

Vertical Mergers
A vertical merger combines two companies that are involved in producing the same goods or services but at different stages of production$ 6ay you own a manufacturing company that makes items out of plastic$ Merging with a company that makes raw plastics would be a vertical merger$ <ertical mergers help prevent business disruptions The manufacturing operation no longer has to worry about obtaining enough plastic! while the plastics operation gets a steady customer$ 'ost savings through eliminating redundant functions are also possible$

Concentric Mergers
'oncentric mergers! also called congeneric mergers! occur between companies within an industry that serve the same customers but don)t offer them the same products or services$ -f you owned a catering company! for e#ample! and you merged with a business that rents tables! chairs! event tents and party e+uipment! that would be a concentric merger$ Both companies appeal to customers who have events to plan! but not in the same way$ 'oncentric mergers diversify the combined company)s offerings and allow the firm to benefit from areas of shared e#pertise$ These mergers can also drive new business! because the firm becomes more of a ;one-stop shop; offering more of the services that both companies) customers are typically looking for$
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