CORPORATE

RESTRUCTURING
• Introduction & Meaning
• Types
• Modes
BACKGROUND
 A business may grow either by organic or inorganic growth.
 In the case of organic growth, a firm grows gradually over
time in the normal course of the business, through acquisition
of new assets, replacement of the technologically obsolete
equipments and the establishment of new lines of products.
 In case of an inorganic growth, the business either acquires
another running business or merges with the same and grows
overnight through combinations. It is also called corporate
restructuring.
 These combinations are in the form of mergers, acquisitions,
amalgamations and takeovers of existing business and have
now become important features of business restructuring.
 Inorganic growth strategy is an important contributing towards
the growth of a number of leading businesses the world over.
INTRODUCTION
 The 1980's bore witness to a decade of aggressive mergers,
acquisitions and takeovers.
 Companies are vying with each other in search of excellence and
competitive edge, experimenting with various tools and ideas. The
changing national and international environment is radically
changing the way business is conducted. Moreover, with the pace
of change so great, corporate restructuring assumes paramount
importance.
 Multinational corporations are also entering India. Swiss cement
major Holcim's investment in ACC and Oracle's purchase of a 41 per
cent stake in i-flex solutions (for $593 million) are good examples.
 Meanwhile, Indian companies, sensing attractive opportunities
outside the country are also venturing abroad. Tata Steel has
bought Singapore-based NatSteel for $486 million. Videocon has
bought the colour picture tubes business of Thomson for $290
million.
DEVELOPMENT PHASES
 FIRST PHASE - happened in the 1980s, led by corporate raiders such as
Swaraj Paul, Manu Chhabria and R P Goenka, in the very early days of
reforms. In view of the license raj prevailing then, buying a company was
one of the best ways to generate growth, for ambitious corporates.
 SECOND PHASE - In the early 1990s, in the liberalized economy, Indian
business houses began to feel the heat of competition. Conglomerates
that had lost focus were forced to sell non-core businesses that could not
withstand competitive pressures. The Tatas, for instance, sold TOMCO to
Hindustan Lever. Corporate restructuring, largely drove this second wave
of M&As.
 THIRD PHASE - started about five years ago, driven by consolidation in
key sectors like cement and telecommunications. Companies like Bharti
Tele-Ventures and Hutch bought smaller competitors to establish a
national presence.
 FOURTH PHASE - Last year, M&A activities were largely restricted to IT
and telecom sectors. They have now spread across the economy. As
Businessworld recently reported, this is the fourth wave of corporate
deal-making in India.
 MEANING
 Corporate Restructuring means-
I. any change in the business capacity or
portfolio that is carried out by inorganic route
or
II. any change in the capital structure of a
company that is not in the ordinary course of
its business or
III. any change in the ownership of a company or
control over its management or
IV. a combination of any two or all of the above 

 This term is a catchall referring to a broad array

of activities intended to expand or contract a
firm’s basic operations or fundamentally change
its asset or financial structure.
 Hence, corporate restructuring may involve
ownership restructuring, business restructuring
and assets restructuring.
 The essence of corporate restructuring lies in
achieving the long run goal of wealth
maximization.
OPERATIONAL RESTRUCTURING
  Downsizing through layoffs or attrition the number of
employees required to support

 specific operations or closing of unprofitable or non-strategic

operations;

 The partial or complete divestiture (i.e., sale) or spin-off

(i.e., non-taxable transfer of a subsidiary’s stock to parent
company shareholders) of a product line or subsidiary; or

 Mergers or acquisitions to enhance the parent’s overall

strategic position and long-term profitability
TECHNOLOGICAL
RESTRUCTURING
 Technological restructuring occurs when a new technology has
been developed that changes the way an industry operates.

 This type of restructuring usually affects employees, and tends

to lead to new training initiatives, along with some layoffs as
the company improves efficiency.

 This type of restructuring also involves alliances with third

parties that have technical knowledge or resources.
FINANCIAL RESTRUCTURING
 Financial restructuring deals with all changes the businesses makes to its debts
and equity, including mergers, acquisitions, joint ventures and other deals.
 Generally these occur when a company joins or is bought by another company.
Ownerships of the company, or at least some interest in the company, is
transferred to another organization or group of investors.
 Actual business practices may remain unchanged.

 It can be done in following ways –

a. Adding debt to lower the firm’s weighted average cost of capital;

b. Adding debt to repurchase outstanding stock to reduce stock in the hands of

shareholders most likely to sell to an unwanted acquirer or to reward current
shareholders by increasing earnings per share and in turn the share price; or

c. Leveraging the firm to distribute a special dividend to make the firm less
attractive to potential acquirers and to increase loyalty of existing
shareholders.
 
MOTIVES
 Limit competition.

 Utilise under-utilised market power.

 Overcome the problem of slow growth and profitability

in one’s own industry.

 Achieve diversification.

 Gain economies of scale and increase income with

proportionately less investment.

 Establish a transnational bridgehead without excessive

start-up costs to gain access to a foreign market

 Tax reasons
MOTIVES
 Sales enhancement

 Improve management

 Utilise under-utilised resources–human and physical and

managerial skills.

 Displace existing management.

 Circumvent government regulations.

 Reap speculative gains attendant upon new security issue or

change in P/E ratio.

 Create an image of aggressiveness and strategic

opportunism, empire building and to amass vast economic
powers of the company.
KEY PARTICIPANTS
 Investment bankers: Often hired by acquiring and target firms, they provide their
clients with strategic and tactical advice and acquisition opportunities, screen potential
buyers and sellers, make initial contact with the seller or buyer, and provide valuation,
negotiation, and deal structuring support.

 Lawyers: Provide specialized legal expertise in such areas as M&As, tax, employee
benefits, real estate, antitrust, securities, environment, and intellectual property.

 Accountants: Provide advice on the optimal tax structure, on financial structuring, and
on performing due diligence.

 Proxy solicitors: Hired by dissident shareholders to compile lists of shareholders’

addresses and to design strategies to educate shareholders and communicate why
shareholders’ should follow their recommendations. Solicitors may also be hired by
boards to promote their positions to shareholders.

 Public relations firms: Assist in developing consistent messages for communicating to

the various stakeholder groups of the firm.

 Institutional investors: Private and public pension funds, insurance firms, investment
companies, bank trust departments, and mutual funds who may seek to take either a
passive or activist role in how a firm is managed by how they vote their shares.
REASONS FOR FAILURE
 Over-estimating synergy/over-payment

 Acquirers tend to overpay for growth firms based on their historical performance.
 Presumed synergies are frequently not achievable resulting in significant
overpayment for the target firm.
 Overpayment compounds challenges of achieving returns required by investors.

 Slow pace of integration

 Key employees and customers are lost doing periods of uncertainty associated
with protracted periods of integration.
 Cost savings are not realized until much later than expected resulting in a lower
present value for such savings

 Poor strategy

 May be too complicated to execute

 May not satisfy customers’ highest priority needs.
MODES OF CORPRORATE
RESTRUCTURING
1. EXPANSIONS

 That mode of corporate restructuring where the entity wishes

to diversify / increase its operations either in the same field
or different areas
 Expansions include mergers, consolidations, acquisitions and
various other activities which result in an enlargement of a
firm or its scope of operations.
 There is a lot of ambiguity in the usage of the terms
associated with corporate expansions. It includes-
a. Mergers
b. Consolidation
c. Joint ventures
d. Acquisition
2. CONTRACTIONS
 Contraction, as the term implies, results in a smaller firm rather than a
larger one.
 If we ignore the abandonment of assets, occasionally a logical course of
action, corporate contraction occurs as the result of disposition of
assets.
 The disposition of assets, sometimes called sell-offs, can take either of
three board forms:
*Demerger
* Divestitures
* Carve outs.
 Spin-offs and carve outs create new legal entities while divestitures do
not.
 Spin-Off creates a new entity with shares being distributed on a pro rata
basis to existing shareholders of the parent company.
 Split-Off is a variation of Sell-Off.
 Divestiture involves sale of a portion of a firm/company to a third
party.
3. OWNERSHIP & CONTROL
 The third major area encompassed by the term corporate restructuring is that of
ownership and control. Herein the corporate entity shall decide to acquire /
takeover another company in order to control the policy affairs of the acquired
company.
 Corporate Control: Corporate control includes buy-backs and greenmail where the
management of the firm wishes to have complete control and ownership.
 Change in Ownership: Change in ownership may either be through an exchange
offer, share repurchase or going public.
 Whether a purchase is considered a merger or an acquisition really depends on
whether the purchase is friendly or hostile and how it is announced. In other
words, the real difference lies in how the purchase is communicated to and
received by the target company's board of directors, employees and shareholders.
 Equity carve out - A parent has substantial holding in a subsidiary. It sells part of
that holding to the public. "Public" does not necessarily mean shareholders of the
parent company.
Parent company keeps control of the subsidiary but gets cash. This may be the
first stage of a two-stage divestment transaction.

a. Privitization
b. Buy back of shares
TYPES OF CORPORATE
RESTRUCTURING
AGENDA

 Mergers / Amalgamation
 Acquisition and Takeover
 Divestiture
 Demerger (spin off / split up / split off)
 Reduction of Capital
 Joint Ventures
 Buy back of Securities
 Slump Sale
 A. Merger or Amalgamation

A merger is a combination of two or more businesses into one business. Laws in India use the term

‘amalgamation’ for merger. Amalgamation is the merger of one or more companies with another or the

merger of two or more companies to form a new company, in such a way that all assets and liabilities

of the amalgamating companies become assets and liabilities of the amalgamated 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 - An absorption is a combination of two or more companies into an ‘existing company’.
All companies except one lose their identity in such a merger. For example, absorption of Tata
Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL, an acquiring company (a buyer), survived
after merger while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets,
liabilities and shares to TCL.
• Consolidation - A consolidation is a combination of two or more companies into a ‘new company’.
In this form of merger, all companies are legally dissolved and a new entity is created. Here, the
acquired company transfers its assets, liabilities and shares to the acquiring company for cash or
exchange of shares. For example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd,
Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL
Ltd.
A. Merger or Amalgamation
 The term ‘merger’ is not defined under the Companies Act, 1956 (“CA
1956”), and under Income Tax Act, 1961 (“ITA”). However, the
Companies Act, 2013 (“CA 2013”) without strictly defining the term
explains the concept.
 The ITA does however defines the analogous term ‘amalgamation’: the
merger of one or more companies with another company, or the merger
of two or more companies to form one company.
 On a general analysis, it can be concluded that Horizontal mergers
eliminate sellers and hence reshape the market structure i.e. they have
direct impact on seller concentration whereas vertical and
conglomerate mergers do not affect market structures e.g. the seller
concentration directly. They do not have anti-competitive consequences.
 TYPES OF MERGERS

(1) Horizontal Merger

 Horizontal mergers are those mergers where the companies manufacturing
similar kinds of commodities or running similar type of businesses merge
with each other.

 It involves combination of two or more entities engaged in the same area of

business. For example, combining of two telecom companies to gain
dominant market share.
 Examples of Horizontal Merger

 Lipton India and Brooke Bond.

 Flipkart & Myntra

 Associated Cement Companies Ltd with Damodar Cement.

(2) Vertical Merger
• A merger between two companies producing different goods or services.

• It involves combination of two or more entities engaged in different

stages of production or distribution of the same product.

• For example, joining of a Newspaper publishing entity and a Books and

journal publishing entity. Vertical merger may take the form of forward
or backward merger.

• When a entity combines with the supplier of material, it is called

backward merger and when it combines with the customer, it is known
as forward merger.
Examples of vertical merger

• A Fast Moving Consumer Goods (FMCG) company is heavily reliant on

advertising. If it acquires an advertising firm, the advertising firm may be able
to produce advertisements with a better understanding of the brand and its
message.
• A textile company merging with a cotton yarn manufacturer is an example of a
vertical merger. It helps the textile company have control over its raw material
cotton yarn.
• A merger between an online shopping website and a payments company helps it
to increase the number of online shopping transactions with digital payments as
digital payments are more convenient for customers.
• Steel is one of the important components in a car. An automobile company
merging with a steel manufacturer helps it manufacture its raw material in-
house. Similarly, an automobile company can also merge with a tire company or
an automobile battery manufacturer.
Example of Vertical Merger

 Pixar (animation studio)-Disney (mass media &

ent.)Merger
Effect of the merger

• The merger turned out to be a successful and strategic one. Before

the merger, Disney’s own animation films were failing. Disney’s
CEO said that animation was a critical engine for driving growth
across its businesses.
• Pixar designed a slew of successful movies after the merger. These
movies turned out to be innovative with ever-lasting characters that
ended up delighting the audience.
• The merger also helped Disney reduce its competition. If Pixar would
have ended up in someone else’s hands, then it would be been
extremely negative for Disney.
(3) Conglomerate Merger
It involves the combination of entities engaged in unrelated lines of business activity. For

example, merging of different businesses like manufacturing of cement products, insurance

investment and advertising agencies.

Two types of conglomerate mergers:

I. Product-extension– Conglomerate mergers which involves companies selling different but

related products in the same market or sell non-competing products and use same marketing

channels of production process. E.g. Pepsico- Pizza Hut, Proctor and Gamble and Clorox

II. Market-extension– Conglomerate mergers wherein companies that sell the same products in

different markets/ geographic markets. E.g. Morrison supermarkets and Safeway, Time

Warner-TCI.

III. Pure Conglomerate- two companies which merge having no obvious relationship of any kind.
 Example of Conglomerate
Merger
 Walt Disney Company and the American Broadcasting Company.
(4) Co-generic Merger

 These are mergers between entities engaged in the

same general industry and somewhat interrelated, but
having no common customer-supplier relationship.

 A company uses this type of merger in order to use the

resulting ability to use the same sales and distribution
channels to reach the customers of both businesses.
Example of co-generic
merger
 When banking giant Citicorp merged with financial services company
Travelers Group in 1998. In a deal valued at $70 billion, the two
companies joined forces to create Citigroup Inc.
 While both companies were in the financial services industry, they had
different product lines.
 Citicorp offered consumers traditional banking services and credit
cards.
 Travelers, on the other hand, was known for its insurance and brokerage
services.
 Effect- The congeneric merger between the two allowed Citigroup to
become one of the biggest financial services companies in the world.
 B. Acquisition
 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.
 A substantial acquisition occurs when an acquiring firm acquires substantial

quantity of shares or voting rights of the target company.

 An acquisition may be defined as an act of acquiring effective control by one

company over assets or management of another company without any

combination of companies. Thus, in an acquisition two or more companies may
remain independent, separate legal entities, but there may be a change in control
of the companies. When an acquisition is ‘forced’ or ‘unwilling’, it is called a
takeover.
Examples
2018

acquired

2012 & 2014

acquired
Leveraged Buy-out (LBO)
 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).

 The assets of the company being acquired are often used as collateral for the loans,
along with the assets of the acquiring company.

 The following firms are generally the targets for LBOs:

 High growth, high market share firms

 High profit potential firms

 High liquidity and high debt capacity firms

 Low operating risk firms

 The evaluation of LBO transactions involves the same analysis as for mergers and
acquisitions. The Discounted Cash Flow (DCF) approach is used to value an LBO.
DIFFERENCE- MERGER & ACQUISITION
 C. Takeover
 The term takeover is understood to connote hostility. When
an acquisition is a ‘forced’ or ‘unwilling’ acquisition, it is
called a takeover.

 Herein a corporate action where an acquiring company makes

a bid for an acquiree.

 If the target company is publicly traded, the acquiring

company will make an offer for the outstanding shares.

 Hostile merger (hostile takeover) usually occurs when the

acquiring company approaches target company but
management of the target company or the board of directors
of the target company do not support the proposal for
acquisition.

 In such a situation, the target company may take actions to

make it harder or impossible for the hostile merger to take
place by executing hostile merger defense strategies.
C. Takeover
 Acquiring company then attempts to obtain the required
amount of shares in the market place via tender
offers. Tender offers refer to formal offers made to the
shareholders in the market to obtain a certain amount of
shares at a given price which is obviously above the current
market price.
 The acquiring company may also undertake a creeping
tender offer by silently purchasing enough shares in the
market place before making their intentions known.
 Hostile mergers (hostile takeover) also occur if the acquiring
company approaches shareholders directly without firstly
approaching the management and board of directors of the
target company.
 Eg. -
Motives for Takeover
 To gain opportunities of market growth more quickly than
through internal means
 To seek to gain benefits from economies of scale
 To seek to gain a more dominant position in a national or
global market
 To acquire the skills or strengths of another firm to
complement the existing business
 To acquire a speedy access to revenue streams that it would
be difficult to build through normal internal growth
 To diversify its product or service range to protect itself
against downturns in its core markets
Takeover might be :
Hostile Takeover
A takeover attempt that is strongly
resisted by the target firm
Friendly Takeover
It involves a situation where the acquiring

company approaches the management of the
target company with the proposal for acquisition.
 Target company's management and board of directors
agree to a merger or acquisition by another company.
 If shareholders approval is obtained then a
friendly merger occurs and it is completed by the
acquiring company obtaining shares in the target
company.
Examples

Hostile takeover - in the early 1980s where Swraj Paul, a London-

based businessman, sought to gain control of two Indian companies,
Escorts Limited and Delhi Cloth Mills (“DCM”). On April 14, 1982,
the Reserve Bank of India issued a circular laying out, among other
things, the procedure through which NRIs could invest in Indian
companies. 
 D. Divestiture
 Divestiture means an out sale of all or substantially all the
assets of the company or any of its business undertakings /
divisions, usually for cash (or for a combination of cash and
debt) and not against equity shares.
 As companies grow they may find they are trying to focus
on too many lines of business, and that they must close
some operational business units in order to focus on more
profitable lines.
 It does not lead to creation of a new entity unlike spin-off.
 Divestiture is normally used to mobilize resources for core
business or businesses of the company by realizing value of
non-core business assets.
 It’s the reverse of acquisition.
Motives:
 Strategic change in operations
 Disposal of unprofitable businesses
 Consolidation
 Unlocking value
Example of Divestiture

 Thomson Reuters, a multinational mass media and information

company based in Canada, sold its intellectual property and sciences
(IP&S) division in July 2016. The company initiated the divestiture
because it wanted to reduce the amount of leverage on its balance
sheet.
 The division was purchased by Onex and Baring Private Equity for
$3.55 billion in cash. The IP&S division booked sales of $1.01 billion
in 2015, and 80% of those sales are recurring, making it an attractive
investment for the private equity firm. The divestiture represented
one-quarter of Thomas Reuters' business in terms of divisions but is
not expected to alter the company's overall valuation.
E. Demerger
 Demerger is a form of corporate restructuring in which an entity’s
business operations are segregated into one or more components.
 It results in formation of two entities.
 The entity undertaking demerger is called as demerged company and the
new entity formed is called the resulting Company.
 Companies adopt demerging to sell subsidiaries or to get rid of non-profit
making division of the company
 Eg. - Wipro Ltd. the third-largest IT industry in India demerged into 3
subunits, Wipro consumer care, and lighting, Wipro product and services
and lastly, Wipro infrastructure medical and engineering diagnosis all
three companies together contributed to 14 percent of revenue.
 Demerger can take three forms:
a. Spin-off
b. Split-off
c. Sell-off
Spin - Off
 A form of divestiture resulting in a subsidiary or division becoming an
independent company. Ordinarily, shares in the new company are
distributed to the parent company’s shareholders on a pro rata basis.
 The spin-off company would usually be created as a subsidiary.
 Hence, there is no change in ownership.
 After the spin-off, shareholders hold shares in two different
companies.
 Herein the company distributes its shareholding in subsidiary to its
shareholders thereby not changing the ownership pattern.
 Eg.- One of the most prominent recent examples, was the spin-off
of PayPal (PYPL) from its former parent EBay (EBAY) on July 17,
2015. In that case, EBay shareholders received one share of PayPal
for each share of EBay they owned. EBay recognized the growth
potential of PayPal as an independent company 
Split - Off
 A means of reorganizing an existing corporate structure in which the stock of
a business division, subsidiary or newly affiliated company is transferred to
the stockholders of the parent company in exchange for stock in the latter.
 shareholders of an existing company form a new company to take over to
takeover specific division of existing company.
 When existing company is dissolved to form few new companies, its called as
Split up.
 Example –Viacom split from Blockbuster in 2004 to shed the
underperforming and unprofitable division weighing down the balance sheet.
 Blockbuster started to feel the pressure from cheaper DVD retailers, digital
recording capabilities of traditional cable set-top boxes, and the early rise of
video on demand services like Netflix (NFLX). As a result, Viacom announced
plans to split off its 81.5% stake in the one-time video rental giant and was
even willing to absorb a $1.3 billion charge to do so. Blockbuster tread water
for about the next five years until filing for Chapter 11 bankruptcy
protection in late 2010.
Split up
 In both instances of spin off and split off, the parent company
survives as a standalone company.
 In a split-up, the parent company is split into two or more
entities, but the parent company is liquidated and does not
survive.
 Example - announcement by United Technologies
on November 26, 2018 to split-up into three separate
companies: United Technologies, Otis Elevator Company, and
Carrier. While the United Technologies name will remain the
same for one of the three companies, the new company
(UTC) will be an entirely new entity from its original parent
(UTX). 
Equity Carve-out
 It is essentially when a parent company creates a new
corporation and sells shares of that new corporation through an
IPO (Initial Public Offering).
 No shares are given to or exchanged with existing shareholders.
 Also known as Split-off IPOs
 The process initiates trading in anew and distinct set of equity
claims on the assets of the subsidiary.
 It facilitates the sale of subsidiary to an outsider.
 Eg. - In 2009, Las Vegas Sands did a carve-out of its Sands China
subsidiary into a new entity to raise over $3 billion in cash.
According to Deloitte Corporate Finance, 64 percent of
companies engage in carve outs because they need cash or
capital. The number one reason is because the entity is “not
considered core to the [parent] company’s business strategy.” 
 F. Joint Venture
 It is a is a business agreement in which the 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.
 There are other types of companies such as JV limited by guarantee, joint
ventures limited by guarantee with partners holding shares.
 Herein two separate firms pool some of their resources, is another such form
that does not ordinarily lead to the dissolution of either firm. Such ventures
typically involve only a small portion of the cooperating firms overall
businesses and usually have limited lives.
 Joint Venture is an arrangement in which two or more companies (called joint
venture partners) contribute to the equity capital of a new company (called
joint venture) in pre-decided proportion.
 A JV can be brought about in the following major ways:
a. Foreign investor buying an interest in a local company
b. Local firm acquiring an interest in an existing foreign firm
c. Both the foreign and local entrepreneurs jointly forming a new enterprise
d. Together with public capital and/or bank debt

• Eg. - ICICI Prudential Life Insurance Company Ltd: is a joint venture

between ICICI Bank and UK-based Prudential Corporation Holdings Limited.
Example of joint venture

 Vistara is the brand name of Tata SIA Airlines Ltd, a JV between India’s corporate
giant Tata Sons and the foreign company Singapore Airlines (SIA).
 The airline Vistara commenced operations on January 9, 2015, with its maiden flight
between New Delhi and Mumbai. By end of January 2018, Vistara operated some 25
destinations in India.
 It also holds the unique distinction of being the first airline to operate a domestic flight
out of Terminal-2 from Mumbai’s Chhatrapati Shivaji International Airport.
 Tata Sons holds 51 percent stake while SIA controls the remaining 49 percent in the
airline. Vistara has carried some three million passengers since its launch.
 The two stakeholders are pumping in billions of US Dollars into Vistara to expand
domestic operations, foray into international markets and expand its fleet of narrow-
body and wide-body aircraft.
 Vistara is one the most successful joint ventures company in India and is estimated to
hold about four to five percent share of India’s domestic aviation market.
G. Buy back of Securities
 A buyback offer is when a company buys some of its
shares from its shareholders and extinguishes them. This
is usually done from shareholders other than the
promoters themselves, and is most often a testament
from the management and promoters on the strength of
the company, and their commitment to increase the
returns for the shareholders.
 Example – in 2019, Wipro buyback of 32.30
crore equity shares which is around 5.35% of all the
existing number of equity shares at a price of Rs.325
per equity share. The buyback offer not exceeding
of Rs.10500 crore of total buyback offer size.
 Buyback can be effectuated through these ways-
i. From existing shareholders on a proportionate basis
ii. Through open market using the book-building process or stock
exchanges
iii. Employees who have been issued shares pursuant to ESOP

 Motives –
a. Increase promoters’ holding
b. Increase earning per share
c. Thwart takeover bids
d. Utilize surplus cash not required by the business
e. Maintain the share price in the longer run
H. Slump Sale
 Escape route for companies who do not want to go through
the entire rigmarole of the formal process of merger.
 It achieves the result of merger i.e. merging of the
undertakings of the merging company with the merged
company.
 The term denotes sale of an entire business undertaking for
a lump sum or slump consideration.
 Here the individual assets and liabilities are not separately
valued.
 The corporate identity of the seller company is not
obliterated, but remains with the seller.
 Eg. - Tata steel acquired the Usha Martin Ltd for Rs.
4300-4700 crore that would help in the reduction of
debt of Usha Martin Ltd.
 Process OF Corporate Restructuring
Approval of Board of
Approval of Merger Information to stock Directors
Exchange

Sanction by High Shareholders & Application in High

Court Creditors meeting Court
Process (Contd…)
Filing of Court Order Transfer of Assets & Payment By cash or
Liabilities Securities
REGULATORY ASPECTS UNDER VARIOUS
STATUTES
Takeover
Regulations
Accounting Competition
Standards Commission
(IFRS) of India

SEBI and Companies

Act, 2013
Stock
Exchanges
Income Tax
Indirect Tax (DTC)
(GST)

FEMA Stamp Duty

Applicable Laws/ Regulations
 The Companies Act, 1956 – Sec 391 to 394
 Companies Act, 2013 – Sec 230 to 240
 The Companies (Court) Rules, 1959
 Depositories Act, 1996
 Competition Act, 2002
 SEBI Takeover Code & Buyback of Securities Regulations
 Listing Agreement (Clause 49)
 FEMA
 RBI Regulations
 Accounting Standards of ICAI – AS-14
 The Income Tax Act, 1961
 Stamp Act
Implications of Restructuring
 Investors
• Concerned about the long term returns that the company is capable of
generating.
• As restructuring have serious financial implications, this creates
insecurity and uncertainty for them.
• So management should share the corporate vision to maintain their
confidence.

 Customers
• Restructuring often leads to reallocation of resources and introduction
of new products, changes in sales policy, etc.
• This might erode the customer base and have severe adverse effects on
future business prospects.

 Management
• Restructuring leads to release of financial resources blocked in
unproductive assets and low return assets and businesses.
• This makes more capital available to the company.
Implications of Restructuring
 Employees
• They have a patterned mind-set so its difficult for them
to adapt to the changes due to restructuring.
• The management needs to involve the employees in the
said process.

 Others
• Reduction in competition
• Seizure of new opportunities to create new businesses
• Contribution to growth of national economy.
• Burden on national exchequer as government needs to
provide companies with resources and other subsidies.
CONCLUSION
 In real terms, the rationale behind mergers and acquisitions is
that the two companies are more valuable, profitable than
individual companies and that the shareholder value is also over
and above that of the sum of the two companies.
 Despite negative studies and resistance from the economists,
M&A’s continue to be an important tool behind growth of a
company.
 Reason being, the expansion is not limited by internal
resources, no drain on working capital - can use exchange of
stocks, is attractive as tax benefit and above all can
consolidate industry - increase firm's market power.
 Indian markets have witnessed burgeoning trend in mergers
which may be due to business consolidation by large industrial
houses, consolidation of business by multinationals operating in
India, increasing competition against imports and acquisition
activities.