Corporate Restructuring Strategies Prepared By Sushil Kumar Sourabh Malhotra Sumit Sharma Gaurav Verma
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
Involves activities to make more balanced and profitable
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
Sale of underutilized assets , such as patents or brands
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
Produce accurate working capital forecasts
Provide open and clear lines of communication with creditors who mostly control the company’s ability to raise the financing
Detailed business plan and considerations
Reasons for Restructuring
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
Portfolio Restructuring
Organizational 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
Types of financial restructuring financial restructuring types
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.
Financial Restructuring Purpose
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
the firm
Preventing
attempts of hostile takeover
Portfolio Restructuring Involves divesting or acquiring a line of business perceived peripheral to the long term business strategy of the company
Represents
the company’s attempt to respond to the marketing needs without losing sight of its core competencies
Portfolio Restructuring Purpose
Restructuring as a result of some strategic alliance
Responding to shareholder’s desire to downsize and refocus the company’s operations
Responding to outside board’s suggestion to restructure
Responding to strategies adopted as a response to exercising call or put options
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
Strategies for Restructuring
Includes Hardware Restructuring Software Restructuring
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
Strategies for Restructuring Software Restructuring Involves cultural and process changes, in order to establish a collaborative environment that facilitates growth and restructuring Focuses on Adopting an open and transparent communication mechanism Building an environment of guidance and coaching Building an environment of trust Raising the aspiration levels of individuals Empowering people & encouraging decentralized decision making Helping individuals develop foresight, i.e. understanding changes and getting ready for the anticipated changes Training people to accept new ideas and challenging assignments
Strategies Options in Corporate Restructuring Adopting an open and transparent communication mechanism Process of eliminating existing inefficiencies Aims at Improving operations Alter the relative strength of the organization to face competition Facilitate creating of competitive advantage Provide better customer satisfaction Generate profits in a free market economy Help the organization differentiate itself from competitors Ensure it delivers value to the customers
Implications of Corporate Restructuring Investors Represent individuals, institutions and companies that have financial stake in the company Investors concerned about immediate future and long-term returns Restructuring generates severe financial implications and this creates insecurity and uncertainty in the minds of the investors Customers Restructuring often results in reallocation of resources, introduction of new products or withdrawal of the existing products, changes in the after sales policy of the company, etc.
Implications of Corporate Restructuring Customers Often result in erosion of customer base and confidence and adversely affect future business prospects Focus on the needs and expectations of the customer by providing quality products and reducing the lead time needed Management Restructuring results in changes in business processes, introduction of changes that suit change in processes, changes in systems and in ensuring effective communication with all the stakeholders
Implications of Corporate Restructuring Management Helps release financial resources blocked in unproductive assets and low return assets and businesses Provides an opportunity to the management to prove its ability to ‘manage the change’ Employees Restructuring impacts them psychologically, culturally and materialistically
Implications of Corporate Restructuring Employees Creates fears in their mind leading to psychological turmoil ‘Patterned Mindset’, makes acceptance of new set of challenges difficult Involves unlearning old skills and acquiring new skills
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