Upload
achuthan-unni
View
263
Download
0
Embed Size (px)
DESCRIPTION
It gives an insight about what is financial restructuring & different modes of financial/corporate restructuring
Citation preview
TOPIC:FINANCIAL
RESTRUCTURING
CONTENTS:• Concept of Restructuring • Modes of Restructuring• Value Creation.
Members : Group 1• Nidhin Jose• Jerin Karol • Noel Sam Abraham• N.Achuthan Unni.
CORPORATE RESTRUCTURING
• Restructuring is the corporate management term for the
act of partially dismantling and reorganizing a company
for the purpose of making it more efficient and therefore
more profitable.
• It generally involves selling off portions of the company
and making severe staff reductions.
• Restructuring is often done as part of a bankruptcy or of
a takeover by another firm, particularly a leveraged
buyout by a private equity firm.
THE CHARACTERISTICS :
• Changes in corporate management
• Sale of underutilized assets, such as patents or brands
• Outsourcing of operations such as payroll and technical
support to a more efficient third party
• Moving of operations such as manufacturing to lower-cost
locations
• Reorganization of functions such as sales, marketing, and
distribution
• Renegotiation of labor contracts to reduce overhead
• Refinancing of corporate debt to reduce interest payments
• A major public relations campaign to reposition the company
with consumers
• Forfeiture of all or part of the ownership share by pre
restructuring stock holders
HOW TO RESTRUCTURE..?
• Under-capitalized company:
Injecting more capital through rights issue or follow-on
public issue
Resorting to additional borrowing from financial
institutions, banks etc.
Issuing Bonds/ Debentures
Accepting Deposits
• Over – capitalized company:
Buy-back of shares
Repaying Loans
Repay fixed deposits to public
Redeeming its debentures
TYPES:
• Portfolio Restructuring: It involves divesting some lines
of business which are considered peripheral to the long-
term strategy.
E.g. Divestiture, asset sales, Spin –offs.
• Financial Restructuring: It means infusion of debt,
happens due to leveraged buy-out or buy back stock
from equity or one-time payment of dividend.
E.g. – Equity carve-out, Equity carve-in, Tax-free
deals
• Organizational Restructuring: It involves changes in the
organizational structure to increase efficiencies.
E g: Down sizing, realigning of business units.
FINANCIAL RESTRUCTURING
• It involves re-arrangement of an Organization’s capital structure to make the company’s finances more balanced.
• It also includes re-structuring the assets & liabilities of an organization • In line with the cash flow needs• In order to promote efficiency & support growth• Give maximum value to the shareholders.
MODES OF RESTRUCTURING
• Expansions
• Sell – offs
• Changes in ownership structure
EXPANSIONS:
• Mergers & Acquisitions :
• It is a tool used by the companies for expanding their
business operations often aiming at increase in their long-
term profitability.
• When one company take over another and clearly establish
itself as a newcomer, the purchase is called acquisition.
• Tender offer::
• A method of effecting a takeover through a public offer to
target firm share-holders to buy their shares.
• Joint venture:
• A combination of subsets of assets contributed by 2 or
more business entities for a specific purpose and a limited
duration
SELL OFFS
• Divestiture : It involves the disposal of ownership interest in
a company or subsidiary in exchange of other forms of assets.
• Equity carve out : When a parent company sells equity of its
subsidiary, the subsidiary becomes an independent entity.
• Spin offs: This involves creating a new entity, but the new
shares are issued to the existing shareholders on a pro-rata
basis. A spin off does not provide the parent company with
additional funds.
• Split off: In this case some shareholders get shares in a
division of the parent company in exchange for their shares in
the parent company.
• Split-up: The parent company is broken up into several spin-
offs and ceases to exist as an entity.
CHANGES IN OWNERSHIP STRUCTURE
• Going private: It refers to transformation of a public
corporation in to private held firm
• Exchange offer: An exchange offer provides one or more
classes of securities, the right or option to exchange part or all
of their holdings for a different class of securities of the firm.
• LBO: LBO are structured transactions where a company or
sponsor , that is proposing the investment creates or uses
another company or vehicle to borrow substantially to fund the
project.
• Buyback of Shares: It is the repurchase of the equity once
offered by the company..
RESTRCUTURING & VALUE CREATION
THE HURDLES :
• Design
• Execution
• Marketing
Value of Business:
Asset
Culture
Integration of Various Resources
Area of Operation
Equity
Debt
Value of Organization:
Changes in Leadership
Financial Differences
Effect of Taxation
Value of the Firm
It is the present value of all the above - Present value of
Financial Risks