Purpose of Corporate restructuring :
1. To enhance the shareholder value
2. To utilize the assets properly
3. To get profitable investment opportunities
4. To diverse the business
5. To reduce cost of capital by designing innovative securities through corporate restructuring
Types of Corporate restructuring :
1. Mergers or amalgamation
The words mergers and amalgamation are always interchangeable but there is slight difference in mergers and amalgamation. Merger is fusion of two or more entities and it is a process in which the identity of one or more entities is lost (as is often seen when political parties merge). In the case of a merger, the assets and liabilities of a company get vested into the assets and liabilities of another company. The shareholders of the company being merged become shareholders of the larger company (as when two or more smaller banks merge with a larger bank). On the other hand, in the case of amalgamation, shareholders of both (or more) companies get new shares allotted that are of a new company altogether.
2. Acquisition or takeover :
Acquistion may be defined as an act of acquiring effective control over assets or management of a company by another company without any combination of businesses or companies.In acquisition , two or more companies may remain independent, separate legal entity but there may be change in control of companies. Acquistion : When managements of acquiring and target companies mutually and willingly agree for the takeover it is called acquisition or friendly takeover Takeover : Takeover means acquisition . When the company takes the target company unwillingly or forcefully it is called takeover. The term takeover is understood to connote hostility.
3. Leveraged buyouts (LBO) :
A leverage buyout (LBO) is an acquisition of a company in which the acquisition is substantially financed through debt. 4. Divestment : A divestment involves the sale of company’s assets or product lines or divisions or brand to the outsiders.It is reverse of acquisition. There are 2 types of divestments : sell-off and spin-off
Sell off :
When a company sells a part of its business to a third party it is called sell –off Spin-offs : When a company creates a new company from the existing single entity it is called a spin-off. 5. Reverse merger / Reverse Takeover : The acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. The transaction typically requires reorganization of capitalization of the acquiring company.