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Corporate Restructuring
Process by which a firm does an analysis of itself and alters what it owes and owns, refocuses itself to specific task of performance improvements
It is a structured decision making exercise undertaken to evaluate the current endowments of company , and fine tuning of the available skills , machinery , and technology to meet the challenges of tomorrow
Restructuring Involves
Outsourcing of operations such as payroll and technical support to a more efficient third party
Moving of operations such as manufacturing to lower cost locations A major public relations campaign to reposition the company with consumers Reorganization of functions such as sales, marketing and distribution
Essentials of Restructuring
Ensure the company has enough liquidity to operate during implementation of a complete restructuring
Provide open and clear lines of communication with creditors who mostly control the companys ability to raise the financing
Change in fiscal and government policies Concept of Customer Delight Cost Reduction Divestment Core Competencies Information Technology Revolution Liberalization, Privatization & Globalization (LPG) Enhancing shareholder value Consistent growth and profitability Restructuring capital structure Bifurcation of Business
Types of Restructuring
Financial Restructuring
Involves change in the capital structure and capital mix of the company to minimize its cost of capital
Also involves infusion of financial resources to facilitate mergers, acquisitions, joint venture, strategic alliances
Depends on availability of free cash flows, takeover threats faced by the company and concentration of equity ownership
Equity restructuring
Debt restructuring
Debt restructuring:When a company is in crisis, it may try to renegotiate with its creditors to reduce or eliminate some of its debts. Faced with the possibility that the distressed company may default on a loan, creditors will often work to adjust the terms of repayment, including lowering interest rates and/or extending the repayment schedule. Debts may also be forgiven, in part, often in exchange for the creditor gaining some equity part ownership in the company.
Equity Restructuring:Companies that have little debt in comparison to their equity that is, they are are underleveraged or have a low debt-to-equity ratio may use some of their equity to buy back stock. This returns more control to the company, which will have fewer stockholders to satisfy and pay dividends to. If the company has excess cash, it can use it to repurchase shares; alternatively, if it doesn't have extra cash available, it may sell off some assets that are not bringing in profits or borrow money for the buyback.
Generating cash for exploiting available investment opportunities Ensure effective use of available financial resources
Change the existing financial structure , in order to reduce the cost of capital
Leveraging Preventing
Portfolio Restructuring
Involves divesting or acquiring a line of business perceived peripheral to the long term business strategy of the company
Represents
the companys attempt to respond to the marketing needs without losing sight of its core competencies
Organizational Restructuring
Restructuring strategy designed to increase the efficiency and effectiveness of personnel, through significant changes in the organizational structure
Is a response changes in the business and related environments. Takes the form of divestiture and acquisitions
Hardware Restructuring : Focuses on Identifying the core competencies of the business Flattening the organizational layers to improve organizational responsiveness Initiating downsizing to reduce excess workforce reduction in overheads Benchmarking against the toughest competitors in order to adopt best practices
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