Chapter 22

Corporate
Restructuring

By Fatmawaty, SS
• Corporate restructuring encompasses a broad array of activities that include
change in ownership, assets structure an/or capital structure

1. external expansion ( merger )

2. business failure ( bankruptcy )

Merger
Merger is technically a combination of two or more companies in which all
but one of the combining companies legally cease to exist and the surviving
company continues in operation under its original name
Types of merger
1. 1. Horizontal merger, is a combination of two or more companies that compete directly with one another ex : Amoco with
British Petroleum

2. 2. Vertical merger is a combination of companies that may have buyer-seller relationship with one another ex : Sears were
to acquire one of its appliance supliers

3. 3. Conglomerate merger is combination of two or more companies in which neither competes directly with the other and no
buyer-seller relationship. Ex : Philips Morris acquisition of General food in 1985

4. Merger Transaction :
5. - Stock Purchase
6. - asset Purchase
7. Form of business combination is a holding company, Joint Ventures, and Leverege buyout
The reason of merger

1. The availability of lower – cost assets2

2. Greater economies scale
3. The availability of more secure raw
material supplies and additional end
product markets
4. The possibility of more rapid growth
5. Greater diversification
6. Tax consideration

The methods

use to value merger candidate : comparative price earning

ratio methode, adjusted book value methode and discounted
cash flow methode
2. Busines Failure
A firm is legally insolvent if the recordered value of its assets is less
liabilities. A firm is bankrupt if it is unable to pay its debts and files
a bankruptcy petition in accordance with federal bankruptcy laws.

Reason of failure :
1. Economics factors
2. Financial causes
3. Lack of experience on the part of the owners of the business
 The failing firms alternative
1. They can attempt to resolve the difficulties with their creditors on an informal,
voluntary basis
2. They can petition the courts for assistance and formally declare bankruptcy .

Legal bankruptcy proceedings focus on decision of whether the failing

firm should be reorganized or liquidated.

- If its going concern value is greater than its liquidation value, the
business will usually be reorganized otherwise, it will be liquidated.