What is Corporate Restructuring?

Corporate Restructuring:
It is a process of changing or redesigning the management style, model or financial structure to achieve the goal of a company. There are various methods to restructure the company like-

·         Merger: It is also known as absorption or amalgamation. The two or more companies are combining to form a new company is called merger. Example: Flipkart-Myntra.

·         Acquisition: If one company purchases more than 50% of shares of target company that is known as acquisition. Example: Barti Airtel acquires Zain Africa in February 2010.

·         Demerger: If a company separated its business unit to operate independently or reverse process of merger is known as demerger. Example: Den network has a demerger of its broadband/ internet service provider arm Skynet Cable Network.

·         Disinvestment: If the company or government selling its business unit which incurred loss for company or government is known as disinvestment. Example: Shipping Credit and Investment Corporation of India, Maruti Udyog Limited.

·         Joint venture: If the two companies join together and form a new company for a particular project or purpose is known as joint venture. Example: NPCIL (Nuclear Power Corporation of India)-IOCL (Indian oil Corporation of India).

·         Strategic alliance: It is an agreement between two companies to share resources and technology for a particular project or purpose. Example: ICICI bank and Vodafone India join together to lunch m-pesa.

·         Slump sum sale: It is a transfer of undertaking regarding as a sale for lump sum consideration without valuing the individual assets and liabilities.

Types of Merger:

·         Vertical Merger: In this merger the two companies are in same industry but the merger takes place between different stages of production. For example: The automobile company merge with automobile production company. It is two type:

·         Forward vertical merger: If the company merge with its distribution channels it is known as forward vertical merger.

·         Backward vertical merger: A company merge with its production company then it is known as backward vertical merger.

·         Horizontal Merger: In this merger the two companies are in same industry and they offer same product and services. This merger helps to reduce the market competition. Ex: Lipton India and brook bond.

·         Concentric merger: The two companies merge, which are in same industry but they offer different products or services are called concentric merger.

·         Conglomerate merger: In this merger the two companies are from different industry and they offer different product or services to the customers are merged to diversify their business activities and expand their market volume. Example: Walt Disney Company and American Broadcasting Company.

·         Statutory merger: In this type of merger the smaller company losses its entity and become part of a buyer company.

·         Consolidation merger: In this merger both the companies losses its entity and form a new company.

·          Subsidiary merger: In this type of merger the target company will not losses its identity because company has a known brand. So, that’s why the names of two companies are merged. Example: Tech Mahindra and Satyam merged to form Mahindra satyam.

·         Friendly merger: The two companies’ management team are agreed for merger.

·         Hostile merger: The target company is not agreed for merger with another company.