We will study and discuss the following


Forms of corporate restructuring
Theory of firm and corporate activity
Numerator and denominator management
Turnaround management
corporate restructuring

 Restructuring is a strategy by which a company changes its financial or

business structure

 This is done in response to changes in external or internal environment

Forms of restructuring :
Expansion
Sell offs
Corporate control
Change in ownership structure
Expansion :can be done through

Merger and acquisition

Tender offers

Joint ventures
corporate restructuring
 Merger is when two or more units converge into a single
unit of business
 Resources of different firms can be pooled together to add
value
 Horizontal merger, vertical merger, conglomerate merger
 Horizontal merger refer to merger when two companies of similar
business come together
Two steel unit forming single company
Vertical merger means two business units in the same business but
different level coming together
For example a marketing company coming together with manufacturing
company of same products
Conglomerate merger refers to when more than two companies from
different businesses come together
Conglomerate merger involves
1. product extension merger, geography extension merger, pure
conglomerate merger
Tender offer :
Offers are made to share holders of another company to either submit or
surrender their shares in a firm
The firm makes it intention clear to management that it wants to overtake
If the management does not agree the bear hug policy can be adopted
In this direct offers are made to share holder
The target company can also join another company to avoid such take
over



 corporate restructuring
 JOINT VENTURE
 Partners Continue To Exist As Separate Ventures
 The Join Venture Refers To The New Venture
 Features Of A New Joint Venture:
 1. Partners Contribute Money , Property, Knowledge, Time, Skills
 Profits Are Shared

corporate restructuring
 Sell offs :
 Spin Offs Is A Separate Legal Entity, Shares Are Distributes To
Existing Share Holders On A Prorate Basis
 New Entity Will Have All Legal Controlling Rights
 Split offs
 Shares of a subsidiary are offered to the shareholders of the existing
company
 The total firm is formed into many split firms
 Parent company no longer exists
 Divestiturte:sale of a portion of firm to a third party
 The parent company exists
corporate restructuring
 corporate control:
 Premium Buy Backs Can Establish Control : buy back the controlling
shares by paying premium
 Stand still agreements: no further take over attempt will be made
 Anti take over agreements : corporate bye laws amended to rpevent
mergers and acquisitions
 Proxy contests :representation on the board of director tyo an outside
agency to reduce the powers of existing agency
 corporate restructuring
 Changes in ownership:

 Through exchange offers for debt or stock

 Share repurchases
 Private transaction – buying the majority shares through private
deal
corporate restructuring
 Theory of firm and corporate activity
 Why do firms exist/ rationale of existence :
 Transactional cost efficiency
 Bounded rationality
 Computational capacity
 Opportunism
 Production cost efficiency
 The firm as a nexus of contracts
corporate restructuring
 Transactional cost efficiency
 Parties involved in transaction can take care of each others needs and
the business can be run smoothly
 So long as the transaction cost efficiency prevails and the profits are
made the firm should continue business
 If the cost of transaction gets into friction the firm should analyze on
the following factors
corporate restructuring
 Bounded rationality :limitation of the transaction relationship due to
not understanding the communication of words and symbols. Limited
capacity of human mind to understand .

 Computational capacity : interval review and see that the contract is

completed otherwise risk of behavior, information lack of
understanding can occur in organization's internal process. The
hierarchical structure helps in decision making


corporate restructuring
 Opportunism: this can happen by distortion of data or making
unrealistic promises by organizational employees and other vested
interests . Again hierarchical structure helps prevent overbidding by an
opportunist

 Production cost efficiency :the efficiency of the firm depends on the

production
 Production is the life line of the firm . Some members can shirk and
not contribute .
 Efficient monitoring can help as long as the marginal benefits of
monitoring are higher than marginal cost of monitoring
 Information system: informational advantage comes with superior
knowledge of the entrepreneur
 Three types of information
 Task information: task to be assigned to employee for efficiency
 Matching the capacity of each employee
 Info about employee between each other
corporate restructuring
 Firm is a nexus of contracts
 Firm is like an institute
 It is a nexus of long term contracts
 Relation amongst people
 Understanding group activity