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. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. Characteristics The selling of portions of the company, such as a division that is no longer profitable or which has distracted management from its core business, can greatly improve the company's balance sheet. Staff reductions are often accomplished partly through the selling or closing of unprofitable portions of the company and partly by consolidating or outsourcing parts of the company that perform redundant functions (such as payroll, human resources, and training) left over from old acquisitions that were never fully integrated into the parent organization. Other characteristics of restructuring can include: Changes in corporate management (usually with golden parachutes) Retention of corporate management sometimes "stay bonus" payments or equity grants 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 Reasons: 1. Apart from increasing the profits other reason behind company going for restructuring is to make company more competitive as compared to other peers in industry. 2. If a company is highly leveraged than company go for debt equity restructuring in order to reduce the interest burden for the company. 3. Another reason behind restructuring is to reduce the cost of operations for the company so that company profit margin improves. 4. If a company is operating at below capacity than in order to utilize the excess capacities companies go for restructuring. 5. If a company is listed in stock market it feels that current market price does not justify true value for a company, and then also company will go for corporate restructuring so as to improve shareholders confidence in the company.

6. Another reason for corporate restructuring is when company is into too many businesses or over diversified; it may want to concentrate only on one business than corporate restructuring is the best way to solve that problem.

The Overall Process

The Merger & Acquisition Process can be broken down into five phases: Phase 1 - Pre Acquisition Review: The first step is to assess your own situation and determine if a merger and acquisition strategy should be implemented. If a company expects difficulty in the future when it comes to maintaining core competencies, market share, return on capital, or other key performance drivers, then a merger and acquisition (M & A) program may be necessary. It is also useful to ascertain if the company is undervalued. If a company fails to protect its valuation, it may find itself the target of a merger. Therefore, the pre-acquisition phase will often include a valuation of the company - Are we undervalued? Would an M & A Program improve our valuations? The primary focus within the Pre Acquisition Review is to determine if growth targets (such as 10% market growth over the next 3 years) can be achieved internally. If not, an M & A Team should be formed to establish a set of criteria whereby the company can grow through acquisition. A complete rough plan should be developed on how growth will occur through M & A, including responsibilities within the company, how information will be gathered, etc. Phase 2 - Search & Screen Targets: The second phase within the M & A Process is to search for possible takeover candidates. Target companies must fulfill a set of criteria so that the Target Company is a good strategic fit with the acquiring company. For example, the target's drivers of performance should compliment the acquiring company. Compatibility and fit should be assessed across a range of criteria - relative size, type of business, capital structure, organizational strengths, core competencies, market channels, etc. It is worth noting that the search and screening process is performed in-house by the Acquiring Company. Reliance on outside investment firms is kept to a minimum since the preliminary stages of M & A must be highly guarded and independent. Phase 3 - Investigate & Value the Target: The third phase of M & A is to perform a more detail analysis of the target company. You want to confirm that the Target Company is truly a good fit with the acquiring company. This will require a more thorough review of operations, strategies, financials, and other aspects of the Target Company. This detail review is called "due diligence." Specifically, Phase I Due Diligence is initiated once a target company has been selected. The main objective is to identify various synergy values that can be realized through an M & A of the Target Company. Investment Bankers now enter into the M & A process to assist with this evaluation. A key part of due diligence is the valuation of the target company. In the preliminary phases of M & A, we will calculate a total value for the combined company. We have already calculated a value for our company (acquiring company). We now want to calculate a value for the target as well as all other costs associated with the M & A. The calculation can be summarized as follows: Value of Our Company (Acquiring Company) $ 560 Value of Target Company 176 Value of Synergies per Phase I Due Diligence 38 Less M & A Costs (Legal, Investment Bank, etc.) ( 9) Total Value of Combined Company $ 765 Phase 4 - Acquire through Negotiation: Now that we have selected our target company, it's time to start the process of negotiating a M & A. We need to develop a negotiation plan based on several key questions:

How much resistance will we encounter from the Target Company? What are the benefits of the M & A for the Target Company? What will be our bidding strategy? How much do we offer in the first round of bidding?

Kiran

The most common approach to acquiring another company is for both companies to reach agreement concerning the M & A; i.e. a negotiated merger will take place. This negotiated arrangement is sometimes called a "bear hug." The negotiated merger or bear hug is the preferred approach to a M & A since having both sides agree to the deal will go a long way to making the M & A work. In cases where resistance is expected from the target, the acquiring firm will acquire a partial interest in the target; sometimes referred to as a "toehold position." This toehold position puts pressure on the target to negotiate without sending the target into panic mode. In cases where the target is expected to strongly fight a takeover attempt, the acquiring company will make a tender offer directly to the shareholders of the target, bypassing the target's management. Tender offers are characterized by the following: The price offered is above the target's prevailing market price. The offer applies to a substantial, if not all, outstanding shares of stock. The offer is open for a limited period of time. The offer is made to the public shareholders of the target. A few important points worth noting: Generally, tender offers are more expensive than negotiated M & A's due to the resistance of target management and the fact that the target is now "in play" and may attract other bidders. Partial offers as well as toehold positions are not as effective as a 100% acquisition of "any and all" outstanding shares. When an acquiring firm makes a 100% offer for the outstanding stock of the target, it is very difficult to turn this type of offer down. Another important element when two companies merge is Phase II Due Diligence. As you may recall, Phase I Due Diligence started when we selected our target company. Once we start the negotiation process with the target company, a much more intense level of due diligence (Phase II) will begin. Both companies, assuming we have a negotiated merger, will launch a very detail review to determine if the proposed merger will work. This requires a very detail review of the target company - financials, operations, corporate culture, strategic issues, etc. Phase 5 - Post Merger Integration: If all goes well, the two companies will announce an agreement to merge the two companies. The deal is finalized in a formal merger and acquisition agreement. This leads us to the fifth and final phase within the M & A Process, the integration of the two companies. Every company is different - differences in culture, differences in information systems, differences in strategies, etc. As a result, the Post Merger Integration Phase is the most difficult phase within the M & A Process. Now all of a sudden we have to bring these two companies together and make the whole thing work. This requires extensive planning and design throughout the entire organization. The integration process can take place at three levels: 1. Full: All functional areas (operations, marketing, finance, human resources, etc.) will be merged into one new company. The new company will use the "best practices" between the two companies. 2. Moderate: Certain key functions or processes (such as production) will be merged together. Strategic decisions will be centralized within one company, but day to day operating decisions will remain autonomous.

3. Minimal: Only selected personnel will be merged together in order to reduce redundancies. Both strategic and operating decisions will remain decentralized and autonomous. If post merger integration is successful, then we should generate synergy values. However, before we embark on a formal merger and acquisition program, perhaps we need to understand the realities of mergers and acquisitions.

Due Diligence
There is a common thread that runs throughout much of the M & A Process. It is called Due Diligence. Due diligence is a very detail and extensive evaluation of the proposed merger. An over-riding question is - Will this merger work? In order to answer this question, we must determine what kind of "fit" exists between the two companies. This includes: Investment Fit - What financial resources will be required, what level of risk fits with the new organization, etc.? Strategic Fit - What management strengths are brought together through this M & A? Both sides must bring something unique to the table to create synergies. Marketing Fit - How will products and services compliment one another between the two companies? How well do various components of marketing fit together - promotion programs, brand names, distribution channels, customer mix, etc? Operating Fit - How well do the different business units and production facilities fit together? How do operating elements fit together labor force, technologies, production capacities, etc.? Management Fit - What expertise and talents do both companies bring to the merger? How well do these elements fit together leadership styles, strategic thinking, ability to change, etc.? Financial Fit - How well do financial elements fit together - sales, profitability, return on capital, cash flow, etc.? Due diligence is also very broad and deep, extending well beyond the functional areas (finance, production, human resources, etc.). This is extremely important since due diligence must expose all of the major risk associated with the proposed merger. Some of the risk areas that need to be investigated are: Market - How large is the target's market? Is it growing? What are the major threats? Can we improve it through a merger? Customer - Who are the customers? Does our business compliment the target's customers? Can we furnish these customers new services or products?

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Competition - Who competes with the target company? What are the barriers to competition? How will a merger change the competitive environment? Legal - What legal issues can we expect due to an M & A? What liabilities, lawsuits, and other claims are outstanding against the Target Company? Another reason why due diligence must be broad and deep is because management is relying on the creation of synergy values. Much of Phase I Due Diligence is focused on trying to identify and confirm the existence of synergies between the two companies. Management must know if their expectation over synergies is real or false and about how much synergy can we expect? The total value assigned to the synergies gives management some idea of how much of a premium they should pay above the valuation of

the Target Company. In some cases, the merger may be called off because due diligence has uncovered substantially less synergies then what management expected.