RESTRUCTURING

INTRODUCTION
Restructuring can be defined as any kind of modification in debt, operation or
structure of a company. This is a kind of corporate action done when the
business is in jeopardy due to problems triggering financial harms.
Restructuring is done mainly to eliminate this type of financial harms and
hence to rejuvenate the business.
Companies might have trouble making payments on its debt. In this
situation, companies often manipulate the terms and policies of the debt in
restructuring. These all manipulations make the debt more manageable to
company and finally it increases the chances of paying to shareholders by
company. Also, company restructures its operation and structure by various
methods such as cutting cost, payroll and reducing its size through the sale
of assets. Without these steps opted, company might collapse due to its
existing terms related to these parameters.
TYPE OF RESTRUCTURING
Portfolio and
asset
restructing

Restructur
ing
capital
restructuring

organisation
and
management

There are three types of restructuring strategies used by the firm:

1. Portfolio and asset restructuring- This type of restructuring is used
to enhance the profitability of both the companies during merger and
acquisitions. It affects distinctly the asset base or the product portfolio
with power control issues in the company in consideration. Three types
of portfolio and asset restructuring are :(i)
Mergers and Amalgamation- It literally means combining of two
commercial companies or business into one. It can also be
understood as a fusion between two or more companies in which
identity of one or more is lost after the process.

(ii)

(iii)

Acquisitions- It is considered as a growth strategy in which a

company partially or fully takes the ownership of other firm.
Acquisition is financed by cash and enables the company to acquire
stocks of the target firm.
Divestitures- As the name suggest it is jettisoning of a business unit
through sale, exchange, closer and bankruptcy in order to increase
the resale value of the firm. It generally happens when company
feels that they are running too many lines of business and they
must close some operational business units in order to focus on
more profitable lines.
Following flow chart illustrates the further divisions of restructuring.

(ii) Capital Restructuring- It involves making changes to the capital

structure of company in order to deal with shifts in the marketplace to deal
with the shift in marketplace that has impacted the financial stability of the
firm. This process involves making change in company finances and holdings
to make the business more efficient and directed towards goal. One way of
doing capital restructuring is through shares buyback. Companies follow a
strategic process of buying their securities from the market for capital
restructuring. This method enables them to increase their controlling stake or
decrease the arising threat from shareholders who may be eyeing for
increased stake in the firm. Companies use this strategy when they have
excess cash. Shares buy back can send both positive and negative signals in
the market. Although, on one side it facilitates capital restructuring but it can
send negative signals in the market wherein people would think that the
company has no more profitable ventures to invest in.

(iii) Organization and Management- It involves making change in

organization structure of the company for the betterment of business. The
continuous innovation in technology, product, work process, materials,
organization culture and structure, demands and diversity, global
competitors are some of the important reasons for organization
restructuring.

RECENT TRENDS:
Wipro's case is the most recent example of Corporate Restructuring in the Indian
context. "As the next decade beckons upon us, we are re-purposing ourselves to
build a bolder, simpler and leaner Wipro, which will meet the current and future
needs of our global customers,"says Rajan Kohli, chief marketing officer at Wipro
Technologies. In the new structure, six separate SBUs will be more accountable and
will operate as independent profit centres.
-Economic Times (Feb, 2011)
Thwarting foreign competition, establishing its hold over a lot of countries in the
world, and in the process, aligning itself with the superpowers. Major changes in the
corporate structure are on, and they have led to a lot of corporates joining the
restructuring bandwagon. Examples of recent trends in India are:
(i)
(ii)

(iii)
(iv)

Engineering major L&T is in process of creating nine separate units that

will work independently within the holding company.
Wipro is going in for a mid-level structural and management makeover
that will see its IT services business being split vertically into six strategic
business units based on industry domains.
Future Group recently restructured to create a pure play retail business in
Pantaloons Retail and bring other non-retail businesses together.
FICCI, an industrial body is itself in the process of restructuring. It is now a
600 people organization and its budget has gone up from 3 crore to 120
crore today. Their next concern is now planning to restructure to meet new
demands.

Also, Investor and shareholder interests are a key consideration for companies. This
is forcing a number of companies to look internally and make changes. "Demerger
of a business making new companies improves valuation significantly. Most of them
will eventually get listed creating additional value.
A very poignant of this was the demerger of Reliance Industries in 2005. Both
Mukesh Ambani and Anil Ambani headed different businesses and five listed
companies emerged as potential investment opportunities for investors by March

2006, the share prices of which were quoted differently on the Bombay Stock
Exchange and National Stock Exchange.
Indias top hotel chains are also witnessing a change of guard. he Tata-run Taj
Hotelshas seen a complete reshuffle in its corporate brass over the past one month
under its new chief executive Rakesh Sarna. Tobacco giant ITC's hotel division, too,
as part of the restructuring, elevated Ranvir Bhandari as vice president operations.
This is an evident note of the fact that we are having both organizational and
financial restructuring and the trend is picking up strongly.