PresentationPresentationbyby

Prof.CA. Nitant TrilokekarProf.CA. Nitant Trilokekar

nptbanking.blogspot.com

Acquisitions and RestructuringAcquisitions and Restructuring

Very popular strategy during the 20th Century.

55,000 acquisitions in the 1980s worth $1.3 trillion.

Pace of acquisitions picked up in the 1990s.

40-45 of acquisitions in recent years involved cross-border transactions.

Why restructure?Why restructure?

Restructure definedRestructure defined Restructuring may include company Restructuring may include company

reorganisation, closure, insolvency, merger & reorganisation, closure, insolvency, merger & acquisition, downsizing, externalisation and acquisition, downsizing, externalisation and delocalisation. delocalisation.

Restructuring is driven by several factors Restructuring is driven by several factors including a more open global economy, including a more open global economy, downturns in economic growth, an ageing downturns in economic growth, an ageing population, introduction of new technologies population, introduction of new technologies affecting ways of working and the necessity to affecting ways of working and the necessity to combat climate change and to reduce combat climate change and to reduce environmental impact. environmental impact.

When does the corporate restructure? When does the corporate restructure? When a company is having trouble making When a company is having trouble making

payments on its debt, it will often consolidate and payments on its debt, it will often consolidate and adjust the terms of the debt in a debt adjust the terms of the debt in a debt restructuring.restructuring.

What does it aim to restructure? What does it aim to restructure? A company restructures its operations or structure by

cutting costs, such as payroll, or reducing its size through the sale of assets.

After a debt restructuring, the payments on debt are more manageable for the company and the likelihood of payment to bondholders increases.

BANKRUPTCY – WHEN BANKRUPTCY – WHEN RESTRUCTURING FAILSRESTRUCTURING FAILS

A legal proceeding involving a person or business A legal proceeding involving a person or business that is unable to repay outstanding debts. that is unable to repay outstanding debts.

The bankruptcy process begins with a petition The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of filed by the debtor (most common) or on behalf of creditors (less common). creditors (less common).

All of the debtor's assets are measured and All of the debtor's assets are measured and evaluated, whereupon the assets are used to evaluated, whereupon the assets are used to repay a portion of outstanding debt. repay a portion of outstanding debt.

Upon the successful completion of bankruptcy Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy. obligations incurred prior to filing for bankruptcy.

Restructurecompany reorganisation, closure, insolvency, downsizing, externalisation and delocalisation.

MERGERMERGER The aspect of corporate strategy, corporate finance and The aspect of corporate strategy, corporate finance and

management dealing with the buying, selling and management dealing with the buying, selling and combining of different companies that can aid, finance, or combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly help a growing company in a given industry grow rapidly

without having towithout having to create another business entity.create another business entity. A merger can resemble a takeover but result in a new A merger can resemble a takeover but result in a new

company name (company name (often combining the namesoften combining the names of the original of the original companies) and in new branding; in some cases, terming companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is the combination a "merger" rather than an acquisition is done purely for political or marketing reasons.done purely for political or marketing reasons.

Acquisitions and RestructuringAcquisitions and Restructuring Acquisition Types:

• Mergers:

Two firms join and integrate operations as co-equals. Chrysler – Diamler Benz example.

• Acquisitions:

One firm buys a controlling interest in another firm with the intent to make the other firm a division or subsidiary of the acquiring firm. In general these agreements are friendly but do not result in a co-equal relationship. Novell’s acquisition of German-based SuSE gives Novell an in-house source for Linux desktop and server operating systems.

• Hostile Takeovers: Acquisition bid is unsolicited. Generally results in incumbent management being removed. Yahoo’s takeover bid for HotJobs to thwart TMP Worldwide (a rival of Yahoo).Microsoft’s alliance with Yahoo to thwart entry of Google is NOT a merger

AcquisitionsAcquisitions

Rationales for Making AcquisitionsRationales for Making Acquisitions

IncreaseIncreasemarket powermarket power

OvercomeOvercomeentry barriersentry barriers

Cost of newCost of newproduct developmentproduct development

Increase speedIncrease speedto marketto market

IncreaseIncreasediversificationdiversification

Reshape firm’sReshape firm’scompetitive scopecompetitive scope

Lower risk comparedLower risk comparedto developing newto developing new

productsproducts

Learn and developLearn and developnew capabilitiesnew capabilities

Acquisitions and RestructuringAcquisitions and Restructuring

• Market PowerMarket Power

Rationales for Making AcquisitionsRationales for Making Acquisitions

Gain size to exploit core competencies.Gain size to exploit core competencies. Usually a horizontal acquisition but may involve vertical or related Usually a horizontal acquisition but may involve vertical or related acquisitions (Disney – Fox Family Worldwide).acquisitions (Disney – Fox Family Worldwide). Time-Warner merger, financial and banking industry consolidation Time-Warner merger, financial and banking industry consolidation

• Overcome Entry BarriersOvercome Entry Barriers

Overcome barriers by acquiring firm in the industry.Overcome barriers by acquiring firm in the industry. Whirlpool’s acquisition of Phillips Electronics appliance business Whirlpool’s acquisition of Phillips Electronics appliance business

• Cost and speed of new product development and introductionCost and speed of new product development and introduction

Acquisitions can provide access to new products much more quickly Acquisitions can provide access to new products much more quickly and at a lower cost than internal development of new products. and at a lower cost than internal development of new products. Many firms in the pharmaceutical industry use acquisitions to enter Many firms in the pharmaceutical industry use acquisitions to enter markets quickly, to overcome the high costs of developing products markets quickly, to overcome the high costs of developing products internally, and to increase the predictability of returns on their internally, and to increase the predictability of returns on their investments.investments.