Meaning
of Corporate Restructuring
Corporate Restructuring refers to the
significant changes made in the financial structure or ownership pattern of a
firm in order to modify its operations. Corporate Restructuring may take place
in various forms like merger, acquisitions, equity carve outs, demergers, takeovers
and many more forms. After 1970s corporate restructuring has became dominant in
the economic environment. In developing countries like India corporate
restructuring forms have became common and a need for each and every small and
big multinational giant like TATA, L&T, Birla and others. Today even
corporate restructuring has become popular in business and financial world and
attracts a huge lot of attention.
Types of Corporate Restructuring
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| Types of Corporate Restructuring |
Now lets know
briefly about the different forms or types of corporate restructuring
§ Merger :
Merger refers to two or more firms coming together to carry out the
operations. Usually in a merger, after merger a new name is given to the entity
formed but in few cases the name of a firm which has a good credibility is
retained with few minor changes like logo, tagline and other things. Merger my
take place in different forms. To know more about merger Click Here
Example for Merger: - Hindustan Computer Limited, Hindustan
Instrumentations Limited, Indian Software Company Limited and Indian Reprographics
Limited combined or merged to form HCL Limited.
§ Purchase of Unit or Plant:
Many firms acquire a unit or plant for strategic benefits and gains.
Both the acquirer and selling firms are
very careful while purchasing/selling a unit as it will have a great impact on
the Company’s image and financial position.
For example SRF India brought Nylon cord division of CEAT Limited.
§ Take Over:
Take over may be regarded as acquisition of equity stake
in a firm greater than 50%. It helps to have the control of the firm by the
acquirer completely.
For Example: - HINDALCO took over INDAL by acquiring 54% stake in INDAL
from its overseas parent, Alcan.
§ Leveraged Buyouts:
A leveraged buyout is an alternative of takeover
or a division, effected to a large extent with of debt finance.
§ Partial Sell off:
It is a form of
selling a division or plant of one company to another company.
§ Sale of Equity Stake:
In this form equity is sold
to another investor greater than 50% to have the control of the firm.
§ DeMerger :
Here two different firms separate there operations and take back
their assets or transfer to another and one firm will no more will operate
there.
For Example: Great Eastern Shipment Company transferred its
offshore division to new company called The Great Offshore Limited. The firm whose business unit is transferred
is called demerged company and the company which the business division is transferred
is called resultant company.
§ Equity Carve out:
Here
the parent company sells of its own shares to its wholly own subsidiary. The
sale of shares may be strategic investor or to general investing public.
§ Private Sector Unit:
Privatization
involves transferring of ownership form government to individual or non-
government institutions partially or completely.
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