Module 1 Introduction.ppt

7/24/2019 Module 1 Introduction.ppt

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Corporate RestructuringCorporate RestructuringIV Sem MBA; Rajagiri Centre for Business

Studies

Faculty : Dr Roshna Varghese

!mail : roshna"arghese#gmail$com

Mo% : &'()()*+,-


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Internal EvaluationInternal Evaluation

Internal Assessment .est : /-

mar0s

Assignments12resentations : /-mar0s

Class 3artici3ation : /4

mar0s

.otal : (4 mar0s


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Assignments12resentations : /-Assignments12resentations : /-

mar0smar0s

Assignment : - mar0s

2resentation 5 /4 mar0s/4

minutes I restructuring story

6Merger1ac7uisition1ta0eo"er$$8

.y3e9 moti"ation9 3arties in"ol"ed Financing

Results of restructuring; current status

$$$$$$2roject Management2resentation$ls
http://../Project%20Management/Presentation.xlsxhttp://../Project%20Management/Presentation.xlsxhttp://../Project%20Management/Presentation.xlsxhttp://../Project%20Management/Presentation.xlsx


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Cor3orate Restructuring! Sylla%us

o Module / : Restructuring!Merger andac7uisitions

o

Module , : Valuationo Module * : Financing9 .a0eo"er and share

%uy%ac0

o Module ( : S


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Module IModule I

Restructuring 5 di>erent methods

Mergers:

.y3es and Characteristics

Moti"es

.heories

Ac7uisitions


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Corporate RestructuringCorporate Restructuring

Any fundamental change in a companys business or

financial structure designed to increase the companys

value to shareholders or creditor.

Common forms Mergers/amalgamations; acquisitions/takeovers; financial

restructuring; divestitures/demergers; buyouts

ivided into t!o

"perational restructuring

#inancial restructuring

$iddy% &an% '. Corporate financial restructuring. Available online at .


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"perational Restructuring"perational Restructuring

(rocess of increasing economic

viability of the underlying business

model.

e.g. Mergers% spin offs% cost cuttingmeasures


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#inancial RestructuringRelates to improvements in the capital structure of

the firm.

In"ol"es restructuring assets and lia%ilities of

com3anies including their de%t to e7uitystructures to 2romote e?ciency

Su33ort gro


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ExpansionMergers, Acquisitions &TakeoversTender ofersAsset acquisition

Alliances and Joint ventures

Corporate ControlAnti take over deensesSare !u"!ack#repurcases$e!t equit" Excange ofers%inancial reorganisation

!ankruptc"'(rox" contests

ContractionDi"estitures S3in !o>s

S3lit ! u3s 7uity car"e 5 outs Assets sale

Canges in o)nersipstructures@e"eraged %uyout and un0 %onds

oing 3ri"ateS=2s and M@2s


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3ansion3ansion

Form of restructuring


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Restructuring ! 3ansion

Mergers:o.


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o Ac7uisitionso =ne rm %uys a controlling interest in another rm


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o.a0eo"ers:oAc7uisition %id is unsolicited$

oenerally results in incum%entmanagement %eing remo"ed$

oe$g$ HB grou3 5 Sha< Jallace6Chha%ria grou38 6,44-8;

oGindujas 5 Asho0 @eyland 6/&')8;oReliance 5 I2C@ 6,44,8


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o.ender o>ersoMa0ing a 3u%lic o>er for ac7uiring the shares

of the target com3any arge 6France8 6/&&'8oCoca Cola 5 2arle 6.hums H3; old S3ot; @imca8

6/&&*8

oG@@ 6no< GH@8! @a0me 6/&&'8

Source : ICFAI material9 3$+$ %egi$Jeston9 Mitchell E Muherin$ 6,44+8$ .a0eo"ers9 restructuring9 and cor3orate go"ernance9 Ke< Delhi :!


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ooint "entureso.


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Restructuring ! Contraction

o

Reduction in sie of the rmoDi"estiture

oSelling assets9 di"isions9 su%sidiaries toanother cor3oration or com%ination of

cor3orations or indi"iduals9 generallyresulting in an infusion of cash$

o.y3es

oS3in ! o>s

oS3lit ! u3s

o7uity car"e ! outs

oAssets sale


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S3in!o>sA ne


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oS3lit!u3so.he entire com3any is %ro0en u3 into ts

o Ke< class of stoc0 for each com3anyo e$g$ Cendant 6HS8 5 ( cos real estate; tra"el; hos3itality9

"ehicle rental %usiness in ,44- ;

o A2SB into A2KC= E A2.RAKSC= 6/&&&8

o @E. is 3lanning for S3lit u3 5 & inde3endent com3anies

6an ,4/,8o 2o


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o 7uity car"e!outo =>ering of full or 3artial interest in a su%sidiary to the

in"estment 3u%lic =R I2= of a cor3orate su%sidiary =R to astrategic 3artner

oe$g Du2ont in /&&' su%sidiary Conoco; @ucent 6/&&+8;

A.E. 6/&&*8

o Asset saleo Sale of tangi%le or intangi%le assets of a com3any to

generate casho Cash to shareholders and go out of eistence1continue to do

%usiness

oe$g$ Asset sale of Dahol 2o


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Restructuring 5 Cor3orate Controlo =%taining control o"er the management of a rm;

o

.o inNuence in organisational strategieso Share Buy%ac0s1re3urchases

o Com3any %uying its oer defenses and 3ost o>er defenses

es ruc ur ng or3ora e


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es ruc ur ng 5 or3ora eControl

* change o>ers* =n or more classes of securities the right or o3tion to

echange a 3art or all their holding for a di>erent class ofsecurities of the rm

* changing de%t for e7uity 6increases le"erage8 or 7uityfor de%t 6decreases le"erage8

* Financial Reorganisation and %an0ru3tcy

8 Restructuring


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Restructuring 5 Changes in o


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o $oing (rivateo :ransformation of a public limited company into a

privately held firm

o elisting

o companies desire to avoid scrutiny of shareholders%regulators and potential investors% and also avoid

payment of e>orbitant compliance costs associated

there!ith.

o e.g. +ssar steel; Carrier Aircon &ndia 9ts% "tis +levator

Compay &ndia 9td



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o +1"(o Mechanism !hereby a company can make ta> deductible

contributions of cash or stock into a trust.

oAn +1"( is nothing but an option to buy the company?s

share at a certain price. :his could either be at the marketprice price of the share currently listed on the stock

e>change% or at a preferential price price lo!er than the

current market price.

o &f the firm has not yet gone public shares are not listed on

any stock e>change% it could be at !hatever price themanagement fi>es it at.

o =ot ta>ed until !ithdra!n by them or sell the shares.

oAnti take over defence



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* M9(s Master 9imited (artnership

* =ot prevalent in &ndia

* :ype of limited partnership !hose shares are publicly

traded.



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Conditions for 16ains form8Financial

Restructuringo Synergy 5 Ac7uisition E Merger

o 2ositi"e incremental net gainassociated


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Conditions for 16ains form8FinancialRestructuring

o

Re"enue enhancementoMar0eting gains

o ads9 distri%ution9 3roduct mi

o GDFC CBo2 6,44'8

GDFC ! /)4 %ranches in Korth E /(4 in South

CBo2 5 ,-4 in Korth E /-4 in Southo.ata .etley 6H8 6,4448

o $g$ Daimler!Ben 6erman8!Chrysler6HS8 6/&&'8 5Merger came to an end on ,44)$

oStrategic %enets

o 2rocter am%leLs ac7uisition of Charmin 2a3er CooMar0et 3o


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oCost Reductionoconomies of scale

o A"erage cost 3er unit

o Sharing of central facilities 5 to3 mgmt9 head7uarters;

com3uter ser"ices

oconomies of "ertical integrationo

.o coordinate closely related o3erating acti"itieso $g$ G@@ and .ata tea ac7uiring tea gardens;

o Co0e ac7uiring %ottling com3anies

oCom3lementary resourceso such as a rm that is "ery good at distri%ution and

mar0eting merging


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* @o


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Mergers and Ac7uisitions

8 Jhen terent from a legal stand3oint9 the

nancial 3ress fre7uently doest not distinguish them$ .he term

merger is often used regardless of actual form of ac7uisition$

Board of ditors$ 6,44*8$ Mergers and ac7uisitions$ Vol /9 Ke< Delhi : ICFAI Hni"ersity 2ress9 33$&/!&-

Ross9 Jestereld E ordan 6,44+8$ Fundamentals of Cor3orate Finance9 )th ed$ Ke< Oor0:Mcra


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Mergers and Ac7uisitions8Mergers:.


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Mergers or Amalgamations

8 In India9 mergers are calledamalgamationsin legal 3arlance$

8 A merger is the com%ination of t


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MEA %y G@@ 6GH@8Food and Beverages8 Mar /&&* Ac7uisition of othari eneral Foods 6%y Broo0e Bond India9 BBI@8

8 un /&&* Merger of Doom Dooma India 6.ea 2lantations8 6BBI@8

8 un /&&* Merger of .ea states India 6.ea 2lantations8 6BBI@8

8 un /&&* Merger of Broo0e Bond India and @i3ton India to form Broo0e Bond

@i3ton India 6BB@I@8

8 un /&&* Ac7uisition of issan 2roducts 6BB@I@8

8 ul /&&* Ac7uisition of Cad%uryLs Dollo3s 6Ice creams8 6BB@I@8

8 Mar /&&( Ac7uisition of .ata =il Mills Com3any 6.=MC=8 6G@@8

8 May /&&( Ac7uisition of Merry


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MEA %y G@@ 6GH@8

Detergents

8 Mar /&&- Restructuring detergents and chemicals%usiness


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Im3act of MEA

Seg+ent Marketsare--./

-0

Marketsare

--1/-2

Souces9 0etch u3s9jams

Kil +*$-(

Ice creams Kil )($4+

.ea Kil ,,$-,

Co>ee Kil -$&4

Soa3s /&$++ ,+$4/

Detergents **$/, (+$),

Cosmetics Kil -+$(&

Merger A%sor3tion E


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Merger 5 A%sor3tion EConsolidation

o Merger can %eoA%sor3tion

o=ne rm ac7uires another com3any9

o.he ac7uiring rm 6the %idder8o retains its name E identity

o Ac7uires all the assets E lia%ilities of the ac7uired rm

o.he ac7uired rm 6target rm8 ceases to eist asa se3arate %usiness entity$

oConsolidationoA merger in


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.y3es of Mergers1Strategieso Goriontal mergers

o

Merger %et


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Benets of Mergers ad ac7uisitions

8 Sensi%le Reasons* Strategic %enet

* Mar0et 3o


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MEA 2rocess1=rganisation ofMergers1Ac7uisitions

/$ De"elo3 a strategic 3lan 6Business 3lan8,$ De"elo3 a merger 3lan

*$ Search candidates for merger

($ Screening 3rocess

-$ Initiate contact


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Merger1ac7uisition 2rocess/$ De"elo3ing the %usiness 3lan

8 Mission and "ision of the rm

8 Jhere to com3ete9 ho< to com3ete9 selfassessment9 dening mission statement9 settingo%jecti"es9 selecting strategy

,$ Merger 2lan8 ey management o%jecti"es 5 nancial E non

nancial

8 Resource assessment

8 Schedule for com3letion

*$ .he Search 2rocess8 sta%lish a 3rimary screening

8 De"elo3 the search strategy


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($ .he Screening 2rocess8 Starts


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+$ Kegotiation8 Dening 3urchase 3rices

* .otal consideration

* .otal 3urchase 3rice1nter3rise "alue

* Ket 3urchase 3rice

8 Rening "aluation

8 Structuring the Deal

8 Due diligence* BuyerLs and sellerLs due diligence

8 De"elo3ing a nancing 3lan

Merger1ac7uisition 2rocess


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Merger1ac7uisition 2rocess)$ De"elo3ing the Integration 2lan

'$ Closing8 Closing document consists of

* 2ur3ose of ac7uisition

* 2rice

* Allocation of 3rice* 2ayment mechanism

* Assum3tion of lia%ilities

* Re3resentations and


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Merger1ac7uisition 2rocess

&$ 2ost closing integration8 Com%ining resources9 3rocesses9 and

res3onsi%ilities of the merged com3anies

/4$ 2ost closing "aluation8 "aluate success of merger

8 Actual 3erformance and e3ected3erformance

8 Correcti"e actions 9 if any

2artici3ants in merger


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2artici3ants in mergerActi"ity

* In"estment %an0s

8 Identication of areas for restructuring8 Buyer1seller identication

8 Structuring and "aluation

8 Kegotiation

8 @egal com3liance

* @a


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Ac7uisitions and Restructuring

Very 3o3ular strategy during the ,4thCentury$

--9444 ac7uisitions in the /&'4s


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Ac7uisition An Act of ac7uiring e>ecti"e control o"er assets

or management of a com3any %y anothercom3any


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Ac7uisition classications* Goriontal ac7uisition

* Ac7uisition of a rm com3eting in the same industry

* Increases rmLs mar0et 3o


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.o3 Ac7uisitionsRank Year Purchaser Purchased

Transactionvalue (in mil.USD)

/ ,444America =nline Inc$6A=@8

.ime Jarner /+(9)()

, ,444 lao Jellcome 2lc$SmithlineBeecham 2lc$

)-9&+/

* ,44(Royal Dutch 2etroleum

Co$

Shell .rans3ort

E .rading Co

)(9--&

( ,44+ A.E. Inc$BellSouthCor3oration

),9+)/

- ,44/ Comcast Cor3orationA.E.Broad%and EInternet S"cs

),94(/

+ ,44( Sano!Synthela%o SA A"entis SA +49,(*

) ,444 Spin-of: Kortel

Ket


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Top 3 acquisitions +ade !" Indianco+panies )orld)ide*

Acquirer

Target

Co+pan"

Countr"

targeted

$eal value 4

+l' Industr"

Tata SteelCorus rou33lc

H /,9444 Steel

5indalco Ko"elis Canada -9&', Steel

6ideoconDae


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Ac7uisition

8 .


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Ac7uisitions* Synergy 5 Ac7uisition E Merger

* 2ositi"e incremental net gain associated


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MEA Moti"es and theories

By Friedrich.raut


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Theories and Motives of M & ATheories and Motives of M & A

Merger as

a rationalchoice

Merger

benefitsbidders

shareholders

Net gains through

synergies

Efficiency

theory

Wealth transfer

from targetscustomers

Monopoly

theory

Wealth transfer

from targets

shareholders

Raider theory

Net gains through

private information

Valuation

theory

Merger benefits bidders ManagersEmpire building

theory

Merger as a process outcome Process theory

Merger as a macroeconomic phenomenonDisturbance

theory

MEA M ti d th i


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o Mono3oly .heoryo 3lains MEA 3lanned and eecuted to

achie"e mar0et share and mar0et 3o


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?ciency theoryo 3lains MEA 3lanned and eecuted to achie"e

synergies adding to enter3rise "aluation$

o Re"enue generating synergieso Merger of ICICI


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Valuation theory

o 3lains MEA 3lanned and eecuted%y the ac7uirer %ecause of %etter3ri"ate information a%t "aln of the

target com3any

o Ac7uirer is ready to 3ay 3remium

o"er the 3resent mar0et 3rice

E i d h i


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o

Raider .heoryo In the contet of 2 62ri"ate e7uity funds89

ac7uirer gets controlling sta0e in cash needycom3anies at much lo


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MEA M ti d th i


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o 2rocess .heoryo MEA decisions are outcomes of 3rocesses go"erned

%y one or more of the follo

Module 1 Introduction.ppt

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