Corporate Restructuring

TYBCOM Semester V
Jigna Vyas
 Introduction
• Meaning: Corporate restructuring refers to a
significant modification made to the structure
or operations of a company to make it more
profitable or better organized for its present
needs.
• It 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

• Improve operational efficiency

• Reduce costs and financial distress
• Enhance company value
• Risk reduction
• Achieve economies of scale
• Development of core-competencies
• Facilitate strategic growth and expansion
 Scope & Importance

Scope:
• Applies to all types of companies
• Includes capital, legal, and operational restructuring
Importance:
• Revitalizes businesses
• Market expansion
• Compliance
 Types of Corporate Restructuring

Financial Market Organisational Technological

 Financial Restructuring

• It deals with the restructuring of the capital base and

raising finance for new projects.
• It helps a firm to revive from a situation of financial
distress without going into liquidation.
• It involves Equity Restructuring like buy-back,
Alteration/Reduction of capital and Debt Restructuring
 Market Restructuring

• It involves decisions with respect to the product market

segments where the company plans to operate on its core
competencies.
• This type of restructuring usually affects employees, and
tends to lead to new training initiatives, along with some
layoffs as the company improves efficiency.
 Technological Restructuring

• It occurs when a new technology is developed that changes

the way an industry operates.
• It also involves alliances with third parties that have technical
knowledge or resources.
• Joint Venture, Strategic Alliances, and Franchising are some
of the examples of market and technological restructuring.
 Organisational Restructuring

• It involves establishing internal structures and procedures for

improving the capability of the personnel in the organization
to respond to changes.
• E.g. some companies shift organizational structure to expand
and create new departments to serve growing markets. Other
companies reorganize corporate structure to downsize or
eliminate departments to conserve overheads.
 Types of Corporate Restructuring

• Mergers (Sec 230-232)

• Demergers (Sec 230-232)
• Reverse Mergers (Sec 232)
• Cross-border Mergers (Sec 234, FEMA)
• Acquisitions (SEBI Takeover Code)
• Internal Restructuring – Capital Reduction (Section 66)
• Buy-back (Sec 68-70)
 Mergers & Amalgamation
(Sections 230-232, Companies Act, 2013)
• A merger is a legal consolidation of two entities into one
entity which can be merged together either by way of
amalgamation or absorption or by formation of a new
company.
• The term merger and amalgamation has not been defined
under the Act. They are often known to be a single
terminology. However, there is a thin difference between the
two.
 Mergers & Amalgamation
(Sections 230-232, Companies Act, 2013)

• ‘Merger’ is the fusion of two or more companies, whereby

the identity of one or more is lost resulting in a single
company whereas
• ‘Amalgamation’ signifies the blending of two or more
undertaking into one undertaking, blending enterprises loses
their identity forming themselves into a separate legal
identity.
 Types of Mergers
• Horizontal Merger: It is a merger between companies
selling similar products in the same market and in direct
competition and share the same product lines and markets.
• Vertical Merger: It is a merger between companies in the
same industry, but at different stages of the production
process. In other words, it occurs between companies
where one buys or sells something from or to the other.
 Types of Mergers
• Conglomerate Merger: It refers to the combination of
two firms operating in industries unrelated to each other.
The business of the target company is entirely different
from the acquiring company.
• Congeneric Merger: It is a merger between two or more
businesses which are related to each other in terms of
customer groups, functions or technology e.g.,
combination of a computer system manufacturer with a
UPS manufacturer.
 Types of Mergers
• Reverse Merger: A reverse merger is a merger in which a
private company becomes a public company by acquiring
it. It saves a private company from the complicated
process and expensive compliance of becoming a public
company. Instead, it acquires a public company as an
investment and converts itself into a public company.
 Mergers
Case Study: HDFC Ltd. & HDFC Bank Merger (2023)

• Objective:
Create India’s largest private-sector bank
• Outcome:
The merged entity had a combined market cap
exceeding ₹14 lakh crore
• Legal Process:
Approved by NCLT, RBI, SEBI, and shareholders
 Reverse Merger (Section 232)
Case Study: ICICI Ltd. merged into ICICI Bank (2002)

• Reason: To combine financing and banking arms

• Result: Enhanced market access and streamlined structure
• The parent company’s balance sheet was more than three
times the size of its subsidiary at the time.
• Legal Process: Court approval under the Companies Act,
1956 (now under Section 232)
 Cross-Border Mergers
(Section 234 & FEMA Regulations)

• Inbound Merger: A Foreign company merges into

an Indian company
• Outbound Merger: An Indian company merges
into a foreign company
 Cross-Border Mergers
Case Study: Tata Motors acquiring Jaguar Land Rover
(2008)
• Objective: Global footprint and luxury segment entry
• Purchase Price: $2.3 billion
• Regulatory Approvals:
RBI, UK regulators, and the Indian Government
Acquisitions (SEBI Takeover Code, 2011)

Meaning:
• One entity acquires control over another by purchasing
shares or assets.
• It occurs when one entity takes ownership of another
entity’s stock, equity interests or assets. It is the purchase by
one company of controlling interest in the share capital of
another existing company.
Acquisitions (SEBI Takeover Code, 2011)
Case Study: Reliance acquiring Future Group (2020)

• Deal Size: ₹24,713 crore

• Objective: Strengthen retail presence
• Status: Blocked by Amazon’s legal challenge;
case in SC
Acquisitions (SEBI Takeover Code, 2011)
Case Study: Zomato acquiring Blinkit (2022)

• Amount: ₹4,447 crore

• Strategic Fit: Last-mile delivery capability
• SEBI & CCI approvals obtained
Demergers & Spin-offs (Sections 230-232)

• It is a Division of a company into multiple entities

• It is a business strategy in which a single business is broken
into components, either to operate on their own, to be sold
or to be dissolved.
• It allows a large company, such as a conglomerate, to split
off its various brands to invite or prevent an acquisition, to
raise capital by selling off components that are no longer
part of the business’s core product line, or to create
separate legal entities to handle different operations.
 Types of Demerger

➢ Divestiture:
It means selling or disposal of assets of the company or any of
its business undertakings/ divisions, usually for cash (or for a
combination of cash and debt).
 Types of Demerger
➢ Spin-offs:
There are two approaches in which Spin offs may be conducted.
In the first approach, the company distributes all the shares of the
new entity to its existing shareholders on a pro rata basis. This leads
to the creation of two different companies holding the same
proportions of equity as compared to the single company existing
•
previously.
The second approach is the floatation of a new entity with its
equity being held by the parent company. The parent company later
sells the assets of the spun off company to another company
➢ Splits/divisions: Splits involve dividing the company into two or
more parts with an aim to maximize profitability by removing
stagnant units from the mainstream business. Splits can be of two
types, Split-ups and Split-offs.

Split-ups: It is a process of reorganizing a corporate structure

whereby all the capital stock and assets are exchanged for those of
two or more newly established companies, resulting in the liquidation
of the parent corporation.

Split-offs: It is a process of reorganizing a corporate structure

whereby the capital stock of a division or subsidiary of a corporation
or of a newly affiliated company is transferred to the stakeholders of
the parent corporation in exchange for part of the stock of the latter.
 Demergers & Spin-offs (Sections 230-232)
Case Study: Adani Enterprises demerging Adani Wilmar
(2021)

• Objective:
Unlock value and focus on the FMCG business
• Outcome: Adani Wilmar listed independently in
2022
• Legal Process: NCLT approval under Section 232
➢Equity Carve-Outs:
Equity carve-outs are referred to a percentage of
shares of the subsidiary company being issued to
the public.
This method leads to a separation of the assets of
the parent company and the subsidiary entity. Equity
carve outs result in publicly trading the shares of the
subsidiary entity.
➢Slump Sale:
It is a transfer of one or more undertakings as a
result of sale for a lump sum consideration, without
values being assigned to the individual assets and
liabilities in such sale.
Sale includes transfer of an asset from one person
to another for some consideration, where
consideration can be in kind or cash.
➢ Joint Venture:
A joint venture (JV) is a business or
contractual arrangement between two or
more parties which agree to pool resources
for the purpose of accomplishing a specific
task may be a new project or any other
business activity.
➢ Strategic Alliance:
It is an arrangement between two companies that have
decided to share resources to undertake a specific, mutually
beneficial project. It is an excellent vehicle for two companies
to work together profitably.
E.g. Etihad Airways, based in Abu Dhabi, has completed an
investment in India’s Jet Airways. This alliance will provide
considerable benefits for both carriers, as it opens Etihad to
23 cities in India, and offers Jet Airways passengers
connection possibilities to the US, Europe, the Middle East
and Africa that were previously unavailable.
 Internal Restructuring – Capital Reduction
(Section 66)

• Reduction in share capital by cancelling paid-up capital

that is lost or unrepresented.
• It means the reduction of issued, subscribed, and paid-up
share capital of the company.
Internal Restructuring – Capital Reduction
Case Study: Kingfisher Airlines
• Attempted capital reduction to offset losses
• Proposed reduction:
From ₹10 to ₹1 per share
• Outcome: Rejected due to outstanding
liabilities and insolvency proceedings
 Buy-back of Shares (Sections 68-70)
• Company repurchases its own shares.
• According to Section 68(1) of the Companies Act,
2013, a company whether public or private, may
purchase its own shares or other specified securities
(hereinafter referred to as “buy-back”) out of:
• (i) its free reserves; or
• (ii) the securities premium account; or
• (iii) the proceeds of any shares or other specified
securities.
 Buy-back of Shares (Sections 68-70)
Case Study: Infosys Buyback (2021)

• Size: ₹9,200 crore at ₹1,750 per share

• Objective: Return surplus cash, improve
ROE
• Regulatory Compliance: SEBI Buyback
Regulations, shareholder resolution
 Need & Benefits of Restructuring

• Improve profitability
• Business diversification
• Increase market share
• Revival of sick units (BIFR abolished,
replaced by IBC)
• Compliance with regulatory requirements
 Challenges & Risks
• Complex approval processes
• Employee and stakeholder resistance
• High restructuring cost
• Post-merger integration issues
• Uncertain market and legal risks
• Example: Jet Airways' attempt at revival
faced operational, legal, and financial
hurdles
 Challenges & Risks

• Improve profitability
• Business diversification
• Increase market share
• Revival of sick units (BIFR abolished,
replaced by IBC)
• Compliance with regulatory requirements
 Recent Trends
• Rise in Fintech and Edtech M&As
• Focus on ESG-led acquisitions
• Increased private equity involvement
• Tech-driven due diligence
Example: BYJU’s acquisitions of WhiteHat Jr.,
Aakash Institute
 Insolvency and Bankruptcy Code (IBC),
2016
• The IBC Code, or the Insolvency and Bankruptcy
Code, 2016, is a comprehensive law in India that
governs the insolvency and bankruptcy proceedings
for companies, partnership firms, and individuals.
• It aims to consolidate and amend existing laws related
to insolvency and bankruptcy, providing a time-
bound process for resolving insolvency and
maximizing asset value.
Insolvency and Bankruptcy Code (IBC),
2016
Purpose: Unified law for insolvency resolution
Key Sections: 7, 9, 10 (CIRP - Corporate Insolvency
Resolution Process )
Case Study: Essar Steel Insolvency
Debt: ₹54,547 crore
Resolution: ArcelorMittal takeover for ₹42,000
crore
Outcome: One of India’s largest IBC success
stories
 References
➢ Companies Act, 2013
➢ SEBI Regulations, 2011
➢ IBC, 2016
➢ MCA Guidelines
➢ RBI & FEMA Circulars
➢ Company Annual Reports
➢ NCLT - National Company Law Tribunal Rules,
Orders, and Judgments
➢ ICSI Study Material