Presentation on

Presented to:

Prof. N.Venketesan

Presented by:

Mohit Tripathi
09BS0001306
 Introduction
• Firm response to changes in internal and external
environment. Because of which companies invest in areas of
core competence and divest other businesses.
• Activities related to expansion or contraction of a firm.
• Reasons for restructuring may include a change of
ownership or ownership structure, demerger, or a response
to a crisis or major change in the business such as
bankruptcy, repositioning, or buyout.
 Restructuring Forms

Expansion Contraction
• Mergers • Spin off
• Acquisitions • Split off
• Tender offers • Split up
• Asset acquisition • Divesture
• Joint Ventures • Equity carve out
• Strategic alliances • Assets sale
 Restructuring Forms

Corporte Control Ownership Structure

• Anti takeover defenses • LBO
• Share repurchase • Going Private
• Exchange offers • ESOP
• Proxy contests
EXPANSION
Mergers: A transaction where two firms agree to integrate their operations on a relatively
coequal basis because they have resources and capabilities that together may create a stronger
competitive advantage.

MERGERS

HORIZONTAL CONGLOMERATE
VERTICAL
MERGER MERGERS
MERGERS

Product extension Geographic market

extension

Pure conglomerate
 Horizontal Mergers
• HORIZONTAL MERGER – SIMILAR LINES OF
ACTIVITY
• HDFC Bank's merger with Centurion Bank of Punjab
• Walt Disney Company's acquisition of 17.2per cent stake in
UTV Software Communication to increase its stake to 32.10
per cent in the company.
• In the year 1999 merger of Glaxo Wellcome and SmithKline
Beecham, both firms ceased to exist when they merged, and
a new company, GlaxoSmithKline, was created.
 Vertical Merger
FIRMS SUPPLYING RAW MATERIALS MERGE WITH FIRM THAT
SELLS
e.g. Time Warner Incorporated, a major cable operation, and the Turner
Corporation, which produces CNN, TBS, and other programming. In
this merger, the Federal Trade Commission (FTC) was alarmed by the
fact that such a merger would allow Time Warner to monopolize
much of the programming on television.
ADVANTAGE
• LOWER BUYING COST OF MATERIAL
• LOWER DISTRIBUITION COST
• ASSURED SUPPLIES AND MARKET
• COST ADVANTAGE
 Conglomerate Merger
UNRELATED INDUSTRIES MERGE
PURPOSE
• DIVERSIFICATION OF RISK
• General Electric also moved into financing and
financial services, which in 2005 accounted for about
45% of the company's net earnings.
• Warren Buffett's Berkshire Hathaway, a holding
company which used surplus capital from its insurance
subsidiaries to invest in a variety of manufacturing and
service businesses.
 Reasons for Acquisitions
Acquisition • Increased
• A transaction where one • market power
firm buys another firm • Overcome
with the intent of more • entry barriers
effectively using a core
competence by making the • Cost of new
acquired firm a subsidiary • product development
within its portfolio of • Increased speed
businesses. • to market
• Google buying YouTube • Lower risk
may be the most well-
• compared to developing
known example of an
acquisition in the •new products
Increased
e-commerce business. • diversification
• Avoid excessive
 Difference between Merger and Acquisition

• In the pure sense of the term, a merger happens when two

firms agree to go forward as a single new company rather
than remain separately owned and operated. This kind of
action is more precisely referred to as a "merger of equals".
The firms are often of about the same size. Both companies'
stocks are surrendered and new company stock is issued in
its place.
• When one company takes over another and clearly
establishes itself as the new owner, the purchase is called an
acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the
buyer's stock continues to be traded.
 Amalgamation
• Merger is restricted to a case where the assets and liabilities
of the companies get vested in another company, the
company which is merged losing its identity and its
shareholders becoming shareholders of the other company.
• On the other hand, amalgamation is an arrangement,
whereby the assets and liabilities of two or more companies
become vested in another company (which may or may not
be one of the original companies) and which would have as
its shareholders substantially, all the shareholders of the
amalgamating companies."
 Joint Ventures
• When two or more persons come
together to form a temporary
partnership for the purpose of
carrying out a particular work,
object, it is termed as joint
venture. The persons come
together are called "co-ventures.
• In a joint venture, two or more
"parent" companies agree to share
capital, technology, human
resources, risks and rewards in a
formation of a new entity under
shared control.
Forming a Joint Venture
• Screening of prospective partners
• Joint development of a
detailed business plan and short
listing a set of prospective partners
based on their contribution to
developing a business plan
• Due diligence - checking the
credentials of the other party
("trust and verify" - trust the
information you receive from the
prospective partner, but it's good
business practice to verify the
facts through interviews with third
parties)
 Case on Toshiba
• Toshiba firmly believes that a single company cannot dominate any
technology or business by itself.
• Toshiba’s approach is to develop relationships with different partners for
different technologies.
• Strategic alliances form a key element of Toshiba’s  corporate strategy. They
helped the company to become one of the leading players in the global
electronics industry.
• In flash memory, Toshiba formed alliances with IBM and National Semi
Conductor.
• Toshiba’s alliance with Motorola has helped it become a world leader in the
production of memory chips.
• The tie-up with IBM has enabled Toshiba to become a world’s largest
supplier of color flat panel displays for notebooks.
• Toshiba believes in a flexible approach because some tension is natural
in business partnerships, some of which may also sour over time. Toshiba
executives believe that the relationship between the company and its partner
should be like friends, not like that of a married couple.
 Tender Offer
• A takeover bid in the form of a public invitation to shareholders to sell their
stock, generally at a price above the market price.
• 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 maximum number of shares.
• Tender offers are attempts to secure outstanding shares of stock associated with a
given company by means other than purchasing the shares on the open market.
• The tender offer usually involves approaching a current shareholder and making
an offer for all or part of the held shares. In order to make
the tender offer attractive, the purchase price is usually above current market
value.
• For example, if a target corporation's stock were trading at a value of $10 per
share, an acquirer might offer $11.50 per share to shareholders on the condition
that 51% of shareholders agree.
 Strategic Alliances
• A Strategic Alliance is a formal relationship between two or more parties to pursue a
set of agreed upon goals or to meet a critical business need while remaining
independent organizations.
• The goal of alliances is to minimize risk while maximizing your leverage and profit.
Alliances are often confused with mergers, acquisitions, and outsourcing.
• Mergers and acquisitions are permanent, structural changes in how the company
exists. Outsourcing is simply a way of purchasing a functional service for the
company.
• An alliance is simply a business-to-business collaboration.
• Alliances are formed for joint marketing, joint sales or distribution, joint production,
design collaboration, technology licensing, and research and development. 
• E.g. individuals from a civil engineering, project management, construction,
landscaping and interior design firms all have different areas of expertise, yet
together can deliver a complete building solution. None of the firms could bid on
a job of this magnitude independently, but as a team they can combine their
expertise for as long as necessary.
 Businesses use strategic alliances to:
• achieve advantages of scale, scope and speed
• increase market penetration
• enhance competitiveness in domestic and/or global markets
• enhance product development
• develop new business opportunities through new products
and services
• expand market development
• increase exports
• diversify
• create new businesses
• reduce costs.
CONTRACTION
 Spin Off
• A spin-out refers to a type of corporate action where a company
"splits off" sections of itself as a separate business.
• The common definition of spin-out is when a division of a
company or organization becomes an independent business. The
"spin-out" company takes assets, intellectual property, technology,
and/or existing products from the parent organization.
• Agilent Technologies spun out of Hewlett-Packard in 1999, formed
from HP's former test-and-measurement equipment division.
• Oxford NanoLabs and Oxford RF Sensors were set up to
commercialize technology based on University of Oxford research,
and have been "spun out" by Isis Innovation, the technology
transfer arm of the University.
• Shugart Associates was a spin-out of IBM.
• AOL was a spin-out of Time Warner.
 Split Off
• A type of corporate reorganization whereby the stock of a
subsidiary is exchanged for shares in a parent company.
• Viacom(video and audio communications) announced a
split off of its interest in Blockbuster in 2004 whereby
Viacom offered its shareholders stock in Blockbuster in
exchange for an appropriate amount of Viacom stock.
• A split-off differs from a spin-off in that the shareholders in
a split-off must relinquish their shares of stock in the parent
corporation in order to receive shares of the subsidiary
corporation whereas the shareholders in a spin-off need not
do so.
 Split UP
• A corporate action in which a single company splits into two or more
separately run companies. Shares of the original company are exchanged
for shares in the new companies, with the exact distribution of shares
depending on each situation.
• Some companies have a broad range of business lines, often completely
unrelated. This can make it difficult for a single management team to
maximize the profitability of each line. It can be much more beneficial to
shareholders to split up the company into several independent
companies, so that each line can be managed individually to maximize
profits.
• The government can also force the splitting up of a company, usually due
to concerns over monopolistic practices. In this situation, it is mandatory
that each segment of a company that is split up be completely
independent from the others, effectively ending the monopoly.
 Divesture
• The partial or full disposal of an investment or asset through
sale, exchange, closure or bankruptcy. Divestiture can be done slowly and
systematically over a long period of time, or in large lots over a short time
period.
• For a business, divestiture is the removal of assets from the books. Businesses
divest by the selling of ownership stakes, the closure of subsidiaries, the
bankruptcy of divisions etc.
• For example, a railroad line might purchase a coal mining company to provide a
direct source of fuel for its fleet of locomotives. But with development of more
efficient diesel engines, the value of that mine becomes seriously eroded. As the
railroad replaces its steam engines with diesels, it has no use for its coal, except
to sell it to someone else. Thus, it faces a crucial decision of whether to sell the
mine or hold on to it and enter the coal supply business.

 
 Equity-Carve Out
• Equity carve-out (ECO or a partial spin-off) is a sort of corporate
reorganization, in which a company creates a new subsidiary and IPOs it later,
while retaining control.
• Usually, up to 20% of subsidiary shares is offered to the public. The
transaction creates two separate legal entities—parent company and daughter
company—with their own boards, management teams, financials, and CEOs.
• Equity carve-outs increase the access to capital markets, enabling carved-out
subsidiary strong growth opportunities, while avoiding the negative signaling
associated with a seasoned offering (SEO) of the parent equity.
• An initial public offering (IPO), referred to simply as an "offering" or
"flotation", is when a company (called the issuer) issues common stock or
shares to the public for the first time. They are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large
privately-owned companies looking to become publicly traded.
 Cont…
• A capital market is a market for securities (debt or equity),
where business enterprises (companies) and governments
can raise long-term funds. It is defined as a market in which
money is provided for periods longer than a year, as the
raising of short-term funds takes place on other markets
(e.g., the money market). The capital market includes the
stock market (equity securities) and the bond market (debt).
• A Seasoned equity offering or secondary equity offering
(SEO) is a new equity issue by an already publicly-traded
company. Secondary offerings may involve shares sold by
existing shareholders (non-dilutive), new shares (dilutive) or
both.
Numerator and Denominator
Management
 Numerator Management
• To grow the numerator (net income), top management
must have:
– a point of view about where new opportunities lie
– must be able to anticipate changing customer
needs
– must have invested preemptively in building new
core competencies
– must provide clear and consistent leadership
 Denominator Management
• Many managers realize that it is a lot harder to raise net
income, than to cut assets and headcount.
• Under pressure for a quick ROI improvement, executives reach
for the lever that will bring the quickest, surest improvement in
ROI - the denominator.
• Easy and quick, a red pencil is all that is required.
• The US and Britain have produced an entire generation of
denominator managers.
• These managers can downsize, declutter, delayer, and divest
better than any managers in the world!
• Even before the current wave of downsizing, US and British
companies had the highest asset productivity ratios of any
companies in the world.