JVIRAHYAS@GMAIL.COM
PRESENTATION ON
CONTENT
1. Corporate Restructuring 1.1. Definition And Meaning 1.2. Concept Of Corporate Restructuring 1.3. Factors Affecting Corporate Restructuring 1.4. Areas Of Corporate Restructuring 1.5. Why Corporate Restructuring 2. Merger Or Amalgamation 2.1. Meaning And Definition: 2.2. Types Of Merger 3. Takeovers Or Acquisition 3.1. Meaning And Definition: 4. Financial Problems Of Mergers And Acquisition 5. Managing The Mergers And Acquisitions Process To Create Value 6. Formulas Of Merger/ Acquition 7. Benefits Of Mergers And Acquisitions 8. Disadvantage Of Merger And Acquisition 9. Procedure For Merger And Acquisition
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CORPORATE RESTRUCTURING
Marketing: a) Unrealistic demand and supply estimates; b) Unreasonable price structure; c) Poor sales promotion; d) Improver marketing and distribution choice leading to high costs; e) Poor after sales and customer service.
Finance: a) Poor financial planning; b) Weak budgetary and cost control system; c) Improper accounting policies; D) Inadequate management information system; e) Poor inventory, receivables and cash management; f) Inadequate tax planning.
Personal Issues: a) Ineffective human resource; b) Poor labour relations; c) Bad human resource policies; d) Under or over staffing & Irrational compensation structure. e) Inadequate motivation and training facilities;
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Division into smaller business: Fierce competition and lack of competitive costing is forcing the companies to restructure themselves. Hence, product divisions which do not fit into the companys main line of business are being divested, thereby divisional sing into smaller businesses.
Benefits of corporate restructuring: Many companies have resorted to restructuring on account of the following benefitsEconomies of scale can be achieved by consolidating the capacities and by expansion of activities. Diversification of business activities minimises the business risks. This enables the firm to achieve the target rate of return.
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Merger or Amalgamation
1) Merger through absorption: a combination of two or more companies into an existing company is known as absorption. In a merger through absorption all companies except one go into liquation and lose their separate identities. Suppose, there are two companies, A Ltd. and B Ltd. Company B Ltd. Are merged into A Ltd. Leaving its assets and liabilities to the acquiring company A Ltd. and company B Ltd. is liquidated. It is a case of absorption. 2) Consolidation: a consolidation is a combination of two or more companies into a new company. In the form of merger, all the existing companies, which combine, go into liquidation and form a new company with a different entity. The entity of consolidating corporation is lost and their assets and liabilities are taken over the new corporation or company. The assets of old concern are sold to new concern and their management and control also passes into the hand of the new concern. Suppose, there are two companies called A Ltd. and B Ltd.; and they merge together to form a new company called AB Ltd. or C Ltd.; it is a case of consolidation.
Types of merger
1) Horizontal merger: when two or more concern dealing in a same product or services join together, it is known as a horizontal merger. The idea behind this type of merger is to avoid competition between the units. For example, two manufacturers of same type of cloth, two transport two book seller companies operating on the same rout-the merger in all these cases will be horizontal merger. Besides avoiding competition, there are economies of scale, marketing economics, elimination of duplication of facilities, etc.
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2) Vertical merger: a vertical merger represents a merger of firms engaged at different stage of production or distribution of the same product or service. In this case two or more companies dealing in the same product but at different stage may join to carry out the whole process itself. A petroleum producing company may set up its own petrol pump for its selling. A railway company may join with coal mining company for carrying coal different industrial centres. The idea behind this type of merger is to take up two different stages of work to ensure speedy production or quick service.
3) Conglomerate merger: when two concerns dealing in totally different activities join hands it will be a case of conglomerate merger. The merging concern neither horizontally nor vertically related to each other. For example, a manufacturing company may merge with an insurance company; a textile company may merge with a vegetable oil mill. There may be some common feature in merging companies, such as distribution channels, technology, etc. This type of merger is undertaken to diversify the activities.
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Takeovers Or Acquisition
Meaning and definition:
An essential feature of merger through absorption as well as consolidation is the combination of the companies. The acquiring company take over the ownership of one or more other companies and combines their operations. However, an acquisition does not involve combination of companies. It is simply an act of acquiring control over management of other companies. The control over management of other company can be acquired through either a friendly take-over or through forced or unwilling acquisition. When a company takeover the control of another company through mutual agreement, it is called acquisition or friendly take-over. On the other hand, if the control acquired through unwilling acquisition, i.e., when the take-over is opposed by the target company it is known as take-over.
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Where , EPSm = EARNING PER SHARE OF MERGED COMPANY. EATa =EARNING AFTER TAX OF THE ACQUIRING COMPANY EATt = EARNING AFTER TAX OF THE TARGET COMPANY Na = NUMBER OF OUTING SHARE IN ACQUIRING COMPANY Nt = NUMBER OF EQUITY SHARE ISSUESBY ACQUIRING COMPANY TO THE SHARE HOLDER OF THE TARGET COMPANY 3) determination of market price per share(mpsm):-
GAIN AND LOSSES OF THE ACQUIRING COMPANY = POST MERGER VALUE OF THE ACQUIRING COMPANY PRE MERGER MARKET VALUE OF THE ACQUIRING COMPANY.
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Num OF EQUITY SHARE ISSES TO TARGET COMPONY IN EVERY YEAR = EXCESS EARNING * P/E RATIOa / MPSa
7) EQUIVALENT EARNING PER SHARE = EPSm * EXCHANGE RATIO / X This steps have to follow for getting the value of the merger.
consolidate. Thus as a result of amalgamation the amalgamated company would have more strength and capacity to operate better than the two or more amalgamating companies individual.
2) Economies of scale: he amalgamated company can have larger volume of operations as compares to the combined individual operations of the
amalgamation companies . it can thus have economic scale by having intensive utilisation of production plants, distribution net work, engineering services , research and development facilities etc.
3) Tax implication: in several amalgamation schemes tax place a crucial role. A companies with heavy cumulative losses may have little prospects of taking advantage of carrying forward the losses and the meeting them out of future profits and thus taking advantage of the tax benefits .
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However in case this company is merged with another profit making company ,its losses can be set off against the profit making company resulting in substantial tax benefits to the amalgamated company.
4) Elimination of competition:
would result in elimination of competitors between them they would also save in terms of advertising cost and thus make available goods to the consumers at lower price.
For Example a company having a long gestation period may merge itself with another company having short gestation period. As a result of this merger the profit coming from company with short gestation period can be used to improve the financial requirement of the company with long gestation period. Latter company with long gestation period starts giving profits, it will benefit for the amalgamated company as a whole.
6) Growth: amalgamation helps faster to balanced growth of the amalgamated company. Growth by acquisition is generally cheaper than the internal growth since numerous cost and risks involved in developing and embarking upon a new product line or a new facilities and almost avoiding by acquisition of a going concern . thus the company can achieve and maintain the desired growth rate by acquiring other companies.
7) Stabilisation by diversification: amalgamation helps company in achieve stability in its earning by diversifying its operations. a company
EXPERINCECING wide economic fluctuations and cyclical phase in earning due to nature of its products or may merge with another company which have totally different line of product or business .
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8) Dilution of FEMA: a foreign company investing in India may merge with Indian company in order to meet the requirements of foreign exchange management act (FEMA) for diluting its foreign shareholding.
9) Personal reasons: the share holder of a closely held company be desire that their company be acquired by another company that has an established for its share. This will also facilitate the valuation of their shareholders for wealth tax purpose. Moreover shareholder of a company can also improve their liquidity position by selling some of their shares and diversifying their investment.
10) Economic necessity: the government may also the merger of two or more sick units into a single unit to make them financial viable. Similarly it may also
requires the merger of a sick units with the healthy unit to ensure better utilisation of resources improving results and better management.
The above is not an exclusive list of mergers and amalgamation. their may be some other factors. The changes in socio economic condition, economic, fiscal, trade and industrial policy of govt, status, governing the company may also the region these.
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2) Concentration of economic power: it has been already been stated above that all type of mergers have the inherent tendency of concentration of
economic power. Monopolistic condition may be created which are ultimately disadvantage for the consumers.
3) Adverse effects on national economy: Concentration of economic power, Elimination of healthy competition, etc may ultimately results in deterioration in the performance of the merged undertakings. It is going to affect adversely to the national economy. However merger are essential for the growth of the organizations. Merger lead to economies of scale, maximum utilisation of the capacity, mobilisation of financial resources, rehabilitation of sick units. operating economies ,
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amalgamation between two or more companies the management of respective companies have to look into the amalgamation schemes. 2) Determination of exchange ratio: the merger and amalgamation requires are pros and cons of the merger and
exchanges of shares. The shareholder of the amalgamated companies offers shares in the amalgamated company for their shareholder.
3) Approval by shareholders: a scheme of amalgamation as provide by the respective boards, before the shareholder of the respective companies for their approval. Section 390to 396A of the companies act 1956 contain provisions regarding amalgamation of two or more company. 4) Consideration of the interest of the creditors: the schemes should also be discussed with the creditor of the amalgamated company and their views as certain. 5) Approval of the court: the schemes of amalgamation has to be submitted to court for its approval .the court is satisfied only when that the schemes is just and reasonable for all concerns . 6) Approval of the BOARD OF DIRECTOR: THE SCHEMES Of amalgamation, involve as a result of negotiations , is put finally before the board of directors of the respective companies for their approval. 7) Transfer of assets and liabilities: from the transferring date all liability and assets are transfer to the acquiring companies. 8) Payment in cash or securities: As per schemes of amalgamation the
acquiring companies will issue the share and debenture or debenture in exchange of share or debentures of acquired companies or make payment in cash.
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Jitendra Virahyas
JVIRAHYAS@GMAIL.COM
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