Chapter 4

Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.
Kapil
Copyright @ 2018
2016 Wiley India Pvt. Ltd. All rights reserved.
Chapter 4
Corporate Restructuring
and M&A
Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N. Kapil
Copyright @ 2018
2016 Wiley India Pvt. Ltd. All rights reserved.
Learning objectives
After reading this chapter, you will be able to:
• Understand the concept of corporate restructuring.
• Understand the various types of corporate restructuring, such as
organization restructuring, financial restructuring, and portfolio
restructuring.
• Understand the tools of portfolio restructuring.
• Understand M&A as a tool for portfolio restructuring.
• Understand the concept of alliances and joint ventures.
• Understand the concept of divestitures, spin-offs, demerger, and sell-offs.
• Understand the nature and concept of mergers and acquisitions.
Copyright @ 2016 Wiley India Pvt. Ltd. All rights reserved.
Corporate restructuring
• Corporate restructuring is aimed at streamlining the business
operation, restructuring the business divisions, restructuring the
funding sources (capital structure), or consolidating by spin-off or
demerger. Ultimately, all restructuring exercises lead to improving the
wealth of the firm in the long run.
• Restructuring activities include diverse initiatives taken by firms, such

as acquiring a new business, reducing debt from its capital structure,
selling off traditional business, or merging its business units or
dividing existing business unit into subsets, etc.
Types of restructuring
• Broadly, corporate restructuring can be categorized into three broad
categories, namely:
1. Organizational restructuring
2. Financial restructuring
3. Portfolio restructuring
Organizational Restructuring
• Organizational restructuring takes place when the firm makes important
changes in its organizational structure, such as span of control, hierarchy,
and firm divisions.
• Redesigning the overall organizational structure of a firm, its divisional
boundaries, markets, employees, product portfolio reduction, etc., form an
integral part of organizational restructuring.
• This exercise should create wealth for the firm. To put it simply, it
• should result in improved financial performance. Organizational
restructuring includes restructuring of business processes and operations
to align the organizational structure with the vision of the firm.
Financial Restructuring
• Financial restructuring caters to changes in the capital structure of the
firm, resulting in value enhancement for the firm. Capital structure is
broadly a mix of debt and equity the firm has.
• Any change in debt–equity mix results in change in the overall cost of
capital for the firm impacting its value.
• Firm activities, such as converting high-cost debt to low-cost debt,
debt recapitalization, making a leveraged buyout (buyout through
loan), equity swap, etc., affect the capital structure of the firm, and
hence the overall cost of capital.
Financial Restructuring….
• In M&A activity deals are financed by Debt , Equity Or both.
• When deals are financed by debt they are termed as leveraged
buyouts- LBO. LBO deals create a change in debt equity mix as well as
the risk profile of the company.
• Equity financed deals also change the debt equity mix of the acquirer
post deal.
Portfolio Restructuring
• Portfolio restructuring relates to changes in the asset composition
owned by the firm and the business line mix the firm operates in.
• It includes activities, such as alliances and JVs, mergers and
acquisitions (M&As), spin-offs, demergers, etc.
• Portfolio restructuring recomposes the asset mix of a firm by selling
off undesired assets and/or buying desired assets.
Portfolio Restructuring …..
• Portfolio restructuring can be broadly classified into:

1. Divestment or divestiture
2. Alliances and joint ventures
3. Mergers and acquisitions
Types of portfolio restructuring
1. Divestment or Divestiture
• Divestment or divestiture is a portfolio structuring strategy by which a
company sells off non-strategic assets.
• Asset sell off is also known as asset divesture or spin-off. Sometimes
series of asset expansion decisions (M&As) may force the company to
consolidate or divesture to realign its focus on the core businesses.
• Divestitures can take three different forms, namely:
1. Equity carve out
2. Spin-off or demerger
3. Asset sell off
2. Joint Venture and Strategic Alliances
• Alliances and JVs are another form of portfolio restructuring. JV is a

business agreement between two parties, where they agree to form a
new entity.
• In many cases, the two companies come together to form a common

project or purpose.
3. Mergers and Acquisition
• M&A is also a strong form of portfolio restructuring tool along with
divestiture and alliances.
• Merger occurs when firms consolidate to form a new entity, or the
dominant player absorbs the target player.
• Acquisition occurs when the acquirer acquires a controlling stake in
the public listed company by acquiring its outstanding shares.
• Merger can be categorized into following types:
1. Horizontal merger
2. Vertical merger
3. Conglomerate merger

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Mergers and Acquisitions: Valuation, Leveraged Buyouts, and Financing by Sheeba Kapil and Kanwal N.

• Restructuring activities include diverse initiatives taken by firms, such

• Portfolio restructuring can be broadly classified into:

2. Joint Venture and Strategic Alliances

• Alliances and JVs are another form of portfolio restructuring. JV is a

• In many cases, the two companies come together to form a common

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