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Finance > M & A/JV > Corporate
restructuring
Corporate
Restructuring
M & A is a generic term used to
mean many different types of corporate restructuring exercises. The
various form of Corporate restructuring can be summarised under three
heads:
I. Expansion
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Merger or amalgamation
Two companies are independent. Within past 2 years one company cannot have owned 50% of another The acquisition should be a single step transaction. The consideration should be in shares. 90% of shareholders of the target company should remain. No disposal of significant part of business within 2 years.
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Takeovers/Acquisitions
Gaining control of the utilisation of corporate assets and resources. This can be done either by taking control through share holding or by purchase of the asset itself. The accounting treatment differs depending upon the method of takeover.
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Joint Ventures/strategic alliances
II. Sell off
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Spin offs
A Company distributes all the shares it owns in a subsidiary to its own shareholders implying creation of two separate public companies with same proportional equity ownership. Sometimes, a division is set up as a separate company.
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Split offs
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Split ups
Parent company has many 100% or near 100% subsidiaries. Each of them is spun off as a public company.
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Divestitures
III. Changes in ownership
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Equity carve out
A parent has substantial holding in a subsidiary. It sells part of that holding to the public. "Public" does not necessarily mean shareholders of the parent company. Thus the asset item "Subsidiary Investment" in the balance-sheet of the parent company is replaced with cash.
Parent company keeps control of the subsidiary but gets cash. This may be the first stage of a two-stage divestment transaction.
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Privatisation
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Buy back of shares
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Leveraged buy out
A party is interested in buying out the stake in a company but lacks financial resources It forms a team of banks who are willing to fund the idea. The team structures the deal after discussions with the company. The deal structure involves the following steps:
The sponsor of the idea forms a shell company. The only asset is cash. The debt-equity ratio is high. It is not listed. Shell Company purchases the shares from existing shareholders of the target mostly paying for in cash. Target and shell company merge. Target is thus de-listed. The merged company is tightly managed for cash. All debts are repaid in short period of, say, 1-5 years. Sponsor takes the company public again, sells his stakes at a profit and exits.