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Corporate Restructuring
Corporate Restructuring is an expression that connotes a restructuring process undertaken
by business enterprise. It is the process of redesigning one or more aspects of a company. Hence,
Corporate Restructuring is a comprehensive process by which a company can consolidate its
business operations and strengthen its position for achieving its short-term and long-term
corporate objectives. A business may grow over time as the utility of its products and services is
recognized, but it is a long drawn process. It may also grow through an inorganic process,
symbolized by an instantaneous expansion in work force, customers, infrastructure resources and
thereby an overall increase in the revenues and profits of the entity.
Restructuring as per Oxford dictionary means reorganization of a company with a view to
achieve greater efficiency and profit, or to adapt to a changing market. According to Peter F
Drucker, the management guru, the greatest change in corporate culture and the way business is
being conducted, is the strategic intervention and relationship based not on ownership, but on
partnership.
Corporate restructuring plays a major role in enabling enterprises to achieve economies
of scale, global competitiveness, right size, reduction of operational costs and administrative
costs.
During the past decade, corporate restructuring has increasingly become a staple of
business and a common phenomenon around the world. Unprecedented number of companies
across the world have reorganized their divisions, restructured their assets and streamlined their
operations in a bid to spur the company performance. The suppliers, customers and competitors
also have an equally profound impact while working with a restructured company.
Historic Background
The concept of merger and acquisition in India was not popular until the year 1988.
During that period a very small percentage of businesses in the country used to come together,
mostly into a friendly acquisition with a negotiated deal. The key factor contributing to fewer
companies involved in the merger was the regulatory and prohibitory provisions of MRTP Act,
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1969. According to this Act, a company or a firm has to follow a burdensome procedure to get
approval for merger and acquisitions.
The year 1988 witnessed one of the oldest business acquisitions or company mergers
attempt in India. It is the well-known ineffective unfriendly takeover bid by Swaraj Paul to
overpower DCM Ltd. and Escorts Ltd. Further to that many other non-resident Indians had put in
their efforts to take control over various companies through their stock exchange portfolio.
Before 1991 Indian economy was closed economy. Various licenses and registration
under various enactments were required to set-up an industry. Due to restrictive government
policies and rigid regulatory framework there existed very limited scope for restructuring.
However, after 1991, the main thrust of Industrial Policy, 1991 was on relaxations in industrial
licensing, foreign investments, and transfer of foreign technology, etc. With the economic
liberalization, globalization and opening-up of economies, the Indian corporate sector started
restructuring businesses to meet the opportunities and challenges.
In the era of hyper competitive capitalism and technological change, industrialists
realized that restructuring perhaps is the best route to reach a size comparable to global
companies so as to effectively compete.
Need and Scope
Corporate Restructuring is concerned with arranging the business activities of the
Corporate as a whole so as to achieve certain pre-determined objectives at corporate level.
Objectives may include the following:
To enhance shareholders value
Orderly redirection of the firms activities
Deploying surplus cash from one business to finance profitable growth in another
Exploiting inter-dependence among present or prospective businesses
Risk reduction
Development of core-competencies
To obtain tax advantages by merging a loss-making company with a profit-making
company
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To have access to better technology
To become globally competitive
To increase the market share
Restructuring aims at improving the competitive position of an individual business and
maximizing its contribution to corporate objectives. It also aims at exploiting the strategic assets
accumulated by a business i.e., monopolies, goodwill, exclusivity through licensing, etc. to
enhance the competitiveness advantages. Thus, restructuring helps in bringing an edge over
competitors. In highly competitive world, cost cutting and value addition are very important to
get highlighted.
Types of Corporate Restructuring
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Recent Merger and Acquisition in India
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Legal Framework for Corporate Restructuring
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Merger and Acquisition
