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CORPORATE RESTRUCTURING
Dr Kumar Sanjay Sawarni
 Major Motivators
➢ Strategic Repositioning:

✓ To realign their business with a new strategic direction. This could involve entering new market.

✓ Example: An energy company restructures to divest its traditional fossil fuel assets and refocus on
renewable energy projects, aligning its business strategy with the global shift towards
sustainability.

✓ Auto companies to EV

✓ Coal India to Solar energy

 Major Motivators
➢ Improving Operational Efficiency:

✓ Restructuring may aim to enhance operational efficiency by reorganizing departments, optimizing

business processes, and eliminating redundancies.

✓ This can lead to cost savings and improved overall performance.

✓ Conglomerates splitting to numbers of independent units

 Major Motivators
➢ Merger and Acquisition (M&A) Activities:

✓ Mergers, acquisitions, and divestitures are common catalysts for restructuring.

✓ Companies may reorganize to integrate new businesses efficiently or to streamline operations after
divesting a business unit.

✓ Example: A pharmaceutical company acquires a biotech firm and undergoes restructuring to integrate
the acquired company's research and development capabilities into its existing operations.

✓ Hindalco Industries, an aluminum and copper producer, acquired Novelis Inc. and subsequently
underwent restructuring to integrate Novelis into its operations.
 Major Motivators
➢ Compliance and Regulatory Changes:

✓ Changes in regulatory requirements or compliance standards may necessitate restructuring to

ensure that the company operates within the legal framework and meets regulatory obligations

✓ Example: A financial institution undergoes restructuring to comply with new regulatory

requirements, such as implementing stricter risk management practices or enhancing
cybersecurity measures.

✓ Yes Bank underwent restructuring to comply with regulatory requirements after facing financial
challenges. The restructuring involved capital infusion and changes in leadership.
 Major Motivators
➢ Globalization and International Expansion:

✓ Companies expanding globally may restructure to establish a more globalized and efficient
organizational structure that can better support international operations.

✓ Example: A technology startup restructures its organizational hierarchy and establishes regional
offices to support its expansion into new international markets.

✓ IT services company Wipro has undergone restructuring to align its operations with international
expansion plans, establishing global delivery centers and regional offices.
 Major Motivators
➢ Changes in Leadership or Ownership:

✓ New leadership or changes in ownership may lead to a reassessment of the company's strategy
and structure, resulting in restructuring initiatives

✓ A company under new leadership restructures its executive team, redefines its corporate
strategy, and divests non-core businesses to align with the vision of the new leadership.
 Financial Restructuring
➢ Process of reorganizing a company's financial structure to improve its financial health and
stability.

➢ To enhance the company's ability to meet its financial obligations, reduce financial distress,
and position itself for sustainable growth

➢ Involves modifying the composition of a company's liabilities, such as debt and equity, to
optimize its capital structure

➢ Common methods of financial restructuring include debt refinancing, debt restructuring,

equity infusions, and asset sales.

➢ An example of financial restructuring would be to add debt to lower the

corporation's overall cost of capital.
 Operational Restructuring
➢ Operational restructuring involves making changes to a company's business operations and
processes to enhance efficiency, reduce costs, and improve overall performance.

➢ Product Portfolio Rationalization

➢ Supply Chain Optimization

➢ Organizational Redesign.
External Restructuring
 Corporate Restructuring: Equity Route

➢ Subsidiarization

➢ Spin-off

➢ Equity Carve Out

➢ Divestiture
 Subsidiarization in Corporate Restructuring
(Equity Route)

➢ Subsidiarization refers to the process of creating subsidiaries within a corporate structure.

➢ In the context of corporate restructuring, companies may opt for subsidiarization as a

strategic move to achieve specific goals such as risk management, tax optimization,
regulatory compliance, or focused business operations.

➢ This involves organizing different aspects of the business into separate legal entities, each
with its own distinct management, operations, and often financial structure.
Spin-off in Corporate Restructuring
 Spin-off in Corporate Restructuring

➢ Spin-offs are cashless transactions and there is no purchase consideration recorded in either
balance sheet.

➢ The investment by the parent company (shares held in the subsidiary) are distributed to its
shareholders on a pro-rata basis as stock dividend. This can be accomplished through a
shareholders’ resolution as in the case of payment of dividend.

➢ In spin-off of a subsidiary, if the holding company is already listed, it results in a back door
listing for the unlisted subsidiary without an IPO.
 Spin-off in Corporate Restructuring
➢ It is not necessary that a spun off unlisted subsidiary of a listed parent company should be
listed automatically.

➢ If the resolution or the scheme provides that the subsidiary shall stay unlisted, the
shareholders of the parent company would become the owners of unlisted shares of the
subsidiary.

➢ Spin-offs are generally tax neutral subject to specific cases.

➢ ICICI Bank was originally a subsidiary of ICICI Limited, an Indian multinational banking
and financial services company. ICICI Bank was spun off as a separate entity, and it has
grown to be one of the leading private sector banks in India.
 Equity Carve Out in Corporate Restructuring

➢ Equity carve-out (ECO) refers to a corporate strategy in which a company sells a percentage
of its subsidiary's equity to the public through an initial public offering (IPO).

➢ This process allows the subsidiary to operate as an independent entity with its own publicly
traded stock while still being partially owned by the parent company.

➢ Equity carve-outs are often pursued to unlock the value of a subsidiary, raise capital for the
parent company, or both.

➢ Indiabulls carved out commercial office business into a separate firm under the name of
Indiabulls commercial assets limited
 Equity Carved Out V/s Spin off
Spin Off Equity carved out
Parent company creates a new, independent Parent company sells a portion of the equity in one
company by distributing the shares of subsidiary to of its business units to the public while retaining
its existing shareholders ownership of the remaining shares
Spun-off entity becomes an independent company Parent company maintains some level of control
with its own management, board of directors, and through its ownership of the remaining shares
financial structure
No cash implication Parent company may use the proceeds from the
equity carve-out for its own purposes
Typically used to create shareholder value by Often used to raise capital for the parent company
allowing the spun-off entity to focus on its core while maintaining an interest in the potential future
business or to unlock hidden value that was not fully success of the business unit
recognized within the larger organization
 Divestiture
➢ Divestiture is a corporate strategy involving the sale, liquidation, or other means of
disposing of a business unit, subsidiary, or asset by a company.

➢ This strategic move is often undertaken to streamline operations, improve efficiency, focus
on core business activities, and enhance shareholder value.

➢ Divestiture can take various forms, and the decision to divest is driven by a company's
strategic objectives, market conditions, and financial considerations.

➢ Divestitures are often seen as a complete exit from a business or market, allowing the parent
company to focus on its core operations.
 Corporate Restructuring: Asset Route

➢ De-merger

➢ Hive-off

➢ Divestiture
 De-merger
➢ Demerger is a process of de-pooling of interests of distinct businesses of a company.

➢ Different types of Demergers:

✓ Plain Vanilla Demergers

✓ Composite Demerger

✓ Vertical Demerger
 Plain Vanilla De-merger
➢ A "plain vanilla demerger" refers to a straightforward and conventional demerger or
separation of a business unit or subsidiary from a parent company.

➢ Demerger is a standard and uncomplicated transaction without the inclusion of complex

financial instruments or intricate structures

➢ It implies a straightforward separation of assets, liabilities, and operations.

➢ One example of a plain vanilla demerger in India is the separation of the Aditya Birla Capital
Limited (ABCL) from its parent company, Aditya Birla Nuvo Limited, which took place in
2017.
 Composite De-merger
➢ A composite demerger involves the transfer of multiple business undertakings or divisions of
a company to different entities.

➢ It involves the splitting of the company into two or more entities, each receiving specific
business units or divisions.

➢ This allows for a more intricate and strategic restructuring of the business.
 Vertical De-merger
➢ A vertical demerger involves the separation of a company's vertically integrated operations
into distinct entities, with each entity focusing on a specific stage of the production or
distribution process.

➢ Vertical demerger splits a business along the supply chain, creating independent entities that
specialize in different vertical stages, such as production, distribution, or retail.

➢ Operational Independence, Distribution of Ownership, and Supply chain segmentation are

the main motivators.
 Hive Off

➢ Process of transferring a specific business unit, subsidiary, or assets of a company into a

separate entity which can either be an existing business or a new legal entity created for this
purpose.

➢ Company transfers specific assets related to the business unit or division being hived off to
the new or existing entity. This can include physical assets, intellectual property, customer
contracts, and more.

➢ Liabilities associated with the business unit or division being hived off are also transferred to
the new or existing entity. This ensures that the hived-off entity assumes responsibility for its
financial commitment.