CU-MCOM-SEM-IV-Merger and Acquisition-Second Draft

MASTER OF COMMERCE SEMESTER-IV MERGER AND ACQUISITION

CHANDIGARH UNIVERSITY Institute of Distance and Online Learning SLM Development Committee Prof. (Dr.) H.B. Raghvendra Vice- Chancellor, Chandigarh University, Gharuan, Punjab:Chairperson Prof. (Dr.) S.S. Sehgal Registrar Prof. (Dr.) B. Priestly Shan Dean of Academic Affairs Dr. Nitya Prakash Director – IDOL Dr. Gurpreet Singh Associate Director –IDOL Advisors& Members of CIQA –IDOL Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Editorial Committee Prof. (Dr) Nilesh Arora Dr. Ashita Chadha University School of Business University Institute of Liberal Arts Dr. Inderpreet Kaur Prof. Manish University Institute of Teacher Training & University Institute of Tourism & Hotel Management Research Dr. Manisha Malhotra Dr. Nitin Pathak University Institute of Computing University School of Business © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS 2 CU IDOL SELF LEARNING MATERIAL (SLM)

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event, Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. CONTENT Unit - 1: Merger & Acquisition: Introduction And Concepts ................................................. 5 Unit-2 Types Of Mergers And Acquisitions ........................................................................ 19 Unit-3 Corporate Reconstruction & Restructuring ............................................................... 32 Unit-4 Corporate Demerger, Reverse Merger And Takeover ............................................... 46 3 CU IDOL SELF LEARNING MATERIAL (SLM)

Unit-5 Takeover .................................................................................................................. 61 Unit-6 Accounting For Amalgamation ................................................................................ 77 Unit-7 Methods Of Purchase Consideration......................................................................... 91 Unit-8 Methods Of Amalgamation .................................................................................... 106 Unit-9 Funding Of Merger And Takeover ......................................................................... 146 Unit-10 Financial Instruments For Funding ....................................................................... 169 Unit-11 Modes Of Funding ............................................................................................... 196 Unit-12 Recent Cases Of Merger....................................................................................... 224 4 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT - 1: MERGER & ACQUISITION: INTRODUCTION AND CONCEPTS STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Meaning of Mergers & Acquisition 1.3 Concepts 1.4 Planning & Strategies for Corporate restructuring in M&A 1.5 Meaning of Merger 1.6 Summary 1.7 Keywords 1.8 Learning Activity 1.9 Unit End Questions 1.10 References 1.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe merger and acquisition.  Learn to distinguish between good and bad reasons for companies to engage in mergers and acquisitions (M&A).  Learn how to price an M&A deal.  List the functions and fundamentals of mergers and acquisitions. 1.1 INTRODUCTION Mergers and acquisitions are among the best approaches to assist the execution of an arrangement to develop quickly. 5 CU IDOL SELF LEARNING MATERIAL (SLM)

Innovation organizations, looking for ground breaking thoughts, new items, prepared information laborers, key connections and extra portion of the overall industry, have been the greediest. Arrangements in the drug business are driven by the need to place more items into improvement pipelines and accomplish certain economies of scale in consolidating innovative work endeavours. Guard industry consolidations have been driven by contracting government financial plans and the need to win private-area. Consolidation and-securing craze has made extreme rivalry for similar objective organizations, where a premium is set on cost and speed. The dread in numerous meeting rooms is that the organization will be forgotten about or abandoned on the off chance that it doesn't move rapidly to procure different organizations. Mergers and Acquisitions (M&A) are considered a very complex financial topic. This is a type of business alliance are used by companies either to diversify or to grow their businesses. A typical M&A will have a lot of intricate issues in tax, legal and synergy. Although M&A is a generic term now, mergers and acquisitions are entirely different business combinations. 1.2 MEANING OF MERGERS & ACQUISITION Mergers and acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions. The term M&A also refers to the desks at financial institutions that deal in such activity the terms mergers and acquisitions are often used interchangeably, however, they have slightly different meanings. When one company takes over another and establishes itself as the new owner, the purchase is called an acquisition. On the other hand, a merger describes two firms, of approximately the same size, that join forces to move forward as a single new entity, rather than remain separately owned and operated. This action is known as a merger of equals. Case in point: Both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. Both companies' stocks were surrendered, and new company stock was issued in its place.1 6 CU IDOL SELF LEARNING MATERIAL (SLM)

A purchase deal will also be called a merger when both CEOs agree that joining together is in the best interest of both of their companies. Unfriendly or hostile takeover deals, in which target companies do not wish to be purchased, are always regarded as acquisitions. A deal can be classified as a merger or an acquisition based on whether the acquisition is friendly or hostile and how it is announced. In other words, the difference lies in how the deal is communicated to the target company's board of directors, employees, and shareholders. Definition of Merger and Acquisition  An acquisition involves one firm buying only a portion of another firm. The acquisition may happen to acquire assets or an altogether different segment of the other firm.  A merger involves the total absorption of a target firm by the acquirer. As a result, one firm ceases to exist and only the new firm (acquirer) remains. 1.3 CONCEPTS What is a Merger? A consolidation happens when at least two organizations join and make another organization. The organizations in a consolidation commonly are in a similar industry or do comparable things and need to either develop or expand their contributions. There are various benefits and reasons organizations take part in consolidations, including:  Combining resources  Removing trade barriers  Taking away competition  Creating a stronger company Types of Mergers and Acquisitions Organizations will combine and procure each other for an assortment of reasons. Here are four of the primary ways organizations unite: Horizontal Merger / Acquisition 7 CU IDOL SELF LEARNING MATERIAL (SLM)

Two organizations meet up with comparable items/administrations. By consolidating they are growing their reach yet are not basically doing anything new. In 2002 Hewlett Packard took more than Compaq Computers for $24.2 billion. The point was to make the prevailing PC provider by consolidating the PC results of the two organizations. Vertical Merger / Acquisition Two organizations unite in a similar industry yet they are at various focuses on the store network. They become all the more in an upward direction coordinated by further developing coordination’s, uniting staff and maybe decreasing opportunity to showcase for items. An attire retailer who purchases a dress assembling organization would be an illustration of an upward consolidation. Conglomerate Merger / Acquisition Two organizations in various businesses unite or one assumes control over the other to widen their scope of administrations and items. This methodology can assist with decreasing expenses by consolidating administrative centre exercises just as diminish hazard by working in a scope of ventures. Concentric Merger / Acquisition Now and again, two organizations will share clients yet offer various types of assistance. A model would be Sony who produces DVD players however who additionally purchased the Columbia Pictures film studio in 1989. Sony was currently ready to create movies to have the option to be played on their DVD players. For sure, this was a vital piece of the system to present Sony Blu-Ray DVD players. Cross-border Merger/Acquisition Cross border mergers are increasing significantly with the shrinking of the globe. Moreover, India is gradually climbing the ease of business rankings and is becoming a favored business destination. Such a Conducive economic environment has spurred the growth of cross border mergers. A cross border merger explained in simplistic terms is a merger of two companies which are located in different countries resulting in a third company. A cross border merger could involve an Indian company merging with a foreign company or vice versa.A company in one country can be acquired by an entity (another company) from other countries. The local company can be private, public, or state-owned company. In the event of the merger or acquisition by foreign investors referred to as cross-border merger and acquisitions. Cross 8 CU IDOL SELF LEARNING MATERIAL (SLM)

border merger will result in the transfer of control and authority in operating the merged or acquired company. Assets and liabilities of the two companies from two different countries are combined into a new legal entity in terms of the merger, While in terms of Coss border acquisition, there is a transformation process of assets and liabilities of local company to foreign company (foreign investor), and automatically, the local company will be affiliated. What is an Acquisition? In an obtaining, another organization doesn't arise. All things considered, the more modest organization is frequently devoured and stops to exist with its resources turning out to be essential for the bigger organization. Acquisitions, now and then called takeovers, for the most part convey a more regrettable underlying meaning than consolidations. Subsequently, obtaining organizations might allude to a securing as a consolidation despite the fact that it's unmistakably a takeover. Procurement happens when one organization assumes control over the entirety of the functional administration choices of another organization. Acquisitions require a lot of money, yet the purchaser's influence is outright. Difference between Merger and Acquisition M&A – a typical truncation of consolidations and acquisitions – is an overall term that alludes to a scope of monetary exchanges whereby organizations are purchased and sold. Consolidations and acquisitions consistently include the union of two separate organizations, which can be both private and public. M&A is expected to build the worth of an organization by differentiating into new business sectors, further developing piece of the pie, or extending geologically. Albeit the terms 'consolidation' and 'obtaining' are frequently utilized conversely, consolidations and acquisitions are marginally various exercises. The fundamental distinction among consolidations and acquisitions is the overall influence in the new element. Inside a consolidation, the first organizations – in principle – become equivalent accomplices in the new association; notwithstanding, a securing consistently brings about one business giving control to the next. Advantages of Mergers and Acquisitions The most widely recognized benefits of consolidations and acquisitions are: 9 CU IDOL SELF LEARNING MATERIAL (SLM)

 Maintaining or speeding up productive development of an organization  Enhancing productivity through cost decrease coming about because of: — Economies of scale — Operating Efficiency — Synergy26 Merger Acquisition and Restructuring  Diversifying the danger of the organization via getting the matter of various revenue sources  Reducing charge risk via setting off collected misfortunes or unabsorbed deterioration of one organization against the benefits of another  Enhancing the market force of the organization. Risks Involved with Mergers and Acquisitions While thinking about a consolidation or securing, organizations need to address the potential dangers implied. The absolute most normal dangers of M&A include: A conflict of organization societies Resources being less important than initially suspected The expense of the genuine M&A measure being higher than arranged, particularly if different gatherings are keen on an objective business Assets being redirected to dealing with the consolidation Key staff being hesitant to join another organization. Real-World Examples of Mergers and Acquisitions In spite of the fact that there have been various consolidations and acquisitions, beneath are two of the most prominent ones throughout the long term. Merger: Exxon and Mobil Exxon Corp. also, Mobil Corp. finished their consolidation in November 1999 after endorsement from the Federal Trade Commission (FTC). Exxon and Mobil were the main two oil makers, separately in the business before the consolidation. The consolidation brought about a significant rebuilding of the consolidated substance, which included selling in excess of 2,400 corner stores across the United States.1 the joint element keeps on exchanging under the name Exxon Mobil Corp. (XOM) on the New York Stock Exchange (NYSE). Acquisition: AT&T Buys Time Warner 10 CU IDOL SELF LEARNING MATERIAL (SLM)

On June 15, 2018, AT&T Inc. (T) finished its procurement of Time Warner Inc., as indicated by AT&T's website.3 However, because of intercession by the U.S. government to hinder the arrangement, the securing went to the courts, yet in February 2019, a claims court got AT&T's takeover free from Time Warner Inc.4 The $42.5 billion procurement will acknowledge cost investment funds for the joined substance of $1.5 billion and income collaborations of $1 billion, which are relied upon to be acknowledged inside three years of the end of the acquisition.3 On May 17, 2021, AT&T declared that it would branch off its Warner Media business and consolidation it with Discovery.5 Compete Risk Free with $100,000 in Virtual Cash Put your exchanging abilities under a magnifying glass with our FREE Stock Simulator. Contend with a huge number of Investopedia merchants and exchange your direction to the top! Submit exchanges a virtual climate before you begin taking a chance with your own cash. Work on exchanging techniques so when you're prepared to enter the genuine market, you've had the training you need. Basic Steps in Strategic Planning in Mergers Any consolidation and securing include the accompanying basic exercises in essential arranging measures. A portion of the fundamental components in essential arranging cycles of consolidations and acquisitions are as recorded underneath: i. Assessment of changes in the association climate ii. Evaluation of organization limits and constraints iii. Assessment of assumptions for partners iv. Analysis of organization, contenders, industry, home-grown economy and worldwide economies v. Formulation of the missions, objectives and polices vi. Development of affectability to basic outside ecological changes vii. Formulation of inner hierarchical execution estimations. viii. Formulation of long-range technique programs. ix. Formulation of mid-range projects and short-run plans 11 CU IDOL SELF LEARNING MATERIAL (SLM)

x. Organisation, subsidizing and different techniques to execute the entirety of the procedure components. xi. Information stream and input framework for proceeded with redundancy of every single fundamental component and for change and changes at each stage. xii. Review and assessment of the relative multitude of cycles. In every one of these exercises, staff and line work force have significant obligations in the essential dynamic cycles. The extent of consolidations and procurement establishes the vibe for the idea of consolidations and securing exercises and thus influences the components which have critical impact over these exercises. This can be seen by noticing the variables considered during the various phases of consolidations and procurement exercises. Legitimate distinguishing proof of various periods of and related exercises smoothen the cycle associated with consolidations. 1.4 PLANNING & STRATEGIES FOR CORPORATE RESTRUCTURING IN M&A The best corporate restructuring strategy for any given company will be based on the reason for the restructuring and the unique circumstances and characteristics of the company. Below are five examples of corporate restructuring strategies for which valuation has particular relevance: 1. Mergers and acquisitions (M&A): In a merger, a company is acquired and absorbed into another business entity, or combines with another existing company to form a new corporate entity. While this strategy is a common one used by companies in financial distress, it should be noted that M&A transactions are often the result not of financial distress but of the potential for business synergies that can be achieved by combining the two businesses. 2. Reverse merger: The reverse merger offers private companies the opportunity to become public companies listed on the stock exchange—without the need to issue an IPO (Initial Public Offer). In a reverse merger, a private company purchases a controlling share of a public company and assumes control of the public company’s board of directors. 12 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Divestiture: Also referred to as divestment, divestiture is the sale or liquidation of subsidiaries or other assets. Companies can sell assets such as subsidiaries or intellectual property (IP); exit a business through a trade sale, typically conducted by auction; form a spin-off, creating a new business out of an existing part of the company; or issue an IPO, selling a portion of the business to public shareholders. 4. Joint venture: In a joint venture, two or more companies form a new business entity. The individual companies involved agree to contribute specified resources and share the expenses, profits, and control of the new company created through the joint venture. 5. Strategic alliance: The strategic alliance allows two or more companies to collaborate to achieve business synergies, while remaining independent organizations. 1.5 MEANING OF MERGER A merger is the combination of two companies into one by either closing the old entities into one new entity or by one company absorbing the other. In other words, two or more companies are consolidated into one company. A merger is a financial activity that is undertaken in a large variety of industries: healthcare, financial institutions, private investments, industrials, and many more. There are two main types of mergers: horizontal and vertical. Horizontal mergers occur when two businesses in the same industry combine into one. This type of combination can cause anti-trust issues depending on the industry. For instance, GM and Ford may not be allowed to merge because of anti-trust laws. Vertical mergers occur when two businesses in the same value chain or supply chain merge. For example a hamburger restaurant might merge with a cow farm. 1.6 SUMMARY  In corporate money, consolidations and acquisitions (M&A) are exchanges in which the responsibility for, other business associations, or their working units are moved or solidified with different elements.  As a part of vital administration, M&A can permit ventures to develop or scale back, and change the idea of their business or cutthroat position. 13 CU IDOL SELF LEARNING MATERIAL (SLM)

 From a lawful perspective, a consolidation is a lawful combination of two elements into one, while procurement happens when one substance takes responsibility for element's stock, value interests or resources.  From a business and monetary perspective, the two sorts of exchanges by and large outcome in the combination of resources and liabilities under one substance, and the qualification between a \"consolidation\" and a \"securing\" is less clear.  An exchange lawfully organized as an obtaining might put one party's business under the roundabout responsibility for other party's investors, while an exchange legitimately organized as a consolidation might give each party's investors fractional possession and control of the joined undertaking.  A arrangement might be indirectly called a consolidation of equivalents if the two CEOs concur that association is to the greatest advantage of both of their organizations, while when the arrangement is unpleasant (that is, the point at which the administration of the objective organization goes against the arrangement) it very well might be viewed as an \"procurement\".  An obtaining/takeover is the acquisition of one business or organization by another organization or other business element.  Specific obtaining targets can be recognized through bunch roads including statistical surveying, exchange exhibitions, sent up from inner specialty units, or production network examination. Such buy might be of 100%, or almost 100%, of the resources or proprietorship value of the procured element.  Consolidation/mixture happens when two organizations consolidate to frame another undertaking inside and out, and neither of the past organizations remains autonomously.  Acquisitions are isolated into \"private\" and \"public\" acquisitions, contingent upon whether the acquire or blending organization (additionally named an objective) is or alternately isn't recorded on a public securities exchange. Some open organizations depend on acquisitions as a significant worth creation system.  An extra measurement or classification comprises of whether an obtaining is well disposed or threatening. 14 CU IDOL SELF LEARNING MATERIAL (SLM)

1.7 KEYWORDS  Accretion - Accumulation is the progressive and steady development of resources and profit because of business extension, an organization's inside development, or a consolidation or procurement. ... The most notable utilizations of monetary growth incorporate zero-coupon securities or aggregate favoured stock.  Acquirer - An acquirer is an organization that gets the rights to another organization or business relationship through an arrangement. Ordinarily, acquirers are additionally monetary organizations that obtain the rights to a dealer account that permits them to support and deal with the shipper's ledger identified with client electronic instalments.  Acquisition - Buying over half of an objective company's stock and different resources permits the acquirer to settle on choices about the recently obtained resources without the endorsement of the organization's different investors.  Amalgamation/Consolidation - The joining of at least one organization into another substance. None of the joining organizations stays; a totally new lawful substance is framed.  Asset Deal - The acquirer buys just the resources of the objective organization (not its offers). It is a kind of M&A exchange. This implies that the exchange of a business is generally either an offer arrangement/stock procurement or a resource bargain.  Backward Integration - An organization gets an objective that delivers the crude material or the ancillaries which are utilized by the acquirer. It expects to guarantee a continuous stock of excellent crude materials at a reasonable cost.  Bootstrap Effect - One of the helpless motivations to make a consolidation. In case the objective's P/E proportion is lower than the acquirer's P/E proportion, the EPS of the acquirer increments after the consolidation. Be that as it may, it is absolutely a bookkeeping/mathematical wonder, and no worth or collaborations are made.  Cash Consideration - The segment of the price tag given to the objective as money. Money thought is typically liked by investors, despite the fact that they may, contingent upon the offer, once in a while lean toward different types of thought, for example, stock or obligation instruments. 1.8 LEARNING ACTIVITY 15 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Discuss about the recent merger of Vodafone and Idea. ___________________________________________________________________________ ___________________________________________________________________________ 2. Our client company G is a high-end maker/manufacturer of luxury goods. It is unable to keep up with demand for alligator-skin products, hand bags, wallets, belts and briefcases. Not only is it having a hard time getting the alligator, it has seen the price of alligator double in the last nine months squeezing otherwise fat margins. The client is considering buying company H, a Louisiana-based company that sources, tans and processes alligator leather. What do they need to take into consideration? ___________________________________________________________________________ ___________________________________________________________________________ 1.9 UNIT END QUESTIONS A Descriptive Question 16 Short Questions 1. What are the Difference between a Merger and an Acquisition? 2. What is a co generic merger? 3. What is a reverse merger? 4. Why would an acquisition be dilutive? 5. Why do companies go for M&A? Long Questions 1. State the advantages and disadvantages of Mergers? 2. Discuss the motives behind International Mergers and Acquisitions. 3. Explain the four types of mergers. 4. Discuss the steps to be followed while planning a merger. 5. Explain the various reasons for a merger. B. Multiple Choice Questions 1. What is same as an acquisition? a. A takeover CU IDOL SELF LEARNING MATERIAL (SLM)

b. A merger c. A spin-off d. An amalgamation 2. What do the ways in which Mergers and Acquisition occur not include? a. Vertical integration b. Horizontal integration c. Diversification d. Takeover 3. What do the good reasons for M&A not include? a. Increasing earnings per share b. Complementing business strategies c. Supporting value added growth d. Stopping a competitor merging or takeover 4. When a new company does not emerge, instead, the smaller company is often consumed and ceases to exist with its assets becoming part of the larger company? a. Merger b. Acquisition c. Takeover d. Consolidation 5. What is the merger of two organizations that have a buyer-seller relationship or, more generally, two or more firms that are operating at different levels within an industry’s supply chain? a. Vertical merger b. Horizontal merger c. Amalgamation d. Consolidation Answers 17 CU IDOL SELF LEARNING MATERIAL (SLM)

1-a, 2-c, 3-d, 4-b, 5-a 1.10 REFERENCES References  Angwin, D.(2007 ) Mergers and Acquisitions. Blackwell , Malden .  Bekier , M.M. , Bogardus , A.J. , and Oldham , T.( 2001 ) Why mergers fail . The McKinsey Quarterly, Number 4 .  Bower , J.( 2001 ) Not all M&As are alike . Harvard Business Review, March/April.  Bruner , Robert F. (2005 ) Deals From Hell: M&A Lessons that Rise ab Textbooks  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Patrick A. Gaughan, Mergers, Acquisitions, And Corporate Restructurings Fourth Edition  Dr. Nishi Kant Jha,(2011) Mergers, Acquisitions and Corporate Restructuring Websites  www.investopedia.com  www.debitoor.com  www.icsi.com 18 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT-2 TYPES OF MERGERS AND ACQUISITIONS STRUCTURE 2.0 Learning objectives 2.1 Introduction 2.2 Horizontal Merger 2.3 Vertical Merger, 2.4 Conglomerate Merger & Concentric Merger 2.5 Summary 2.6 Keywords 2.7 Learning Activity 2.8 Unit End questions 2.9 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe a merger and an acquisition.  Describe why mergers and acquisitions occur.  Explain the role of due diligence when performing a merger or acquisition.  Identify the ten main terms considered when structuring a deal and describe why they matter. 2.1 INTRODUCTION The terms consolidations and acquisitions are frequently utilized conversely, albeit, indeed, they have marginally various implications. At the point when one organization assumes control over another and builds up itself as the new proprietor, the buy is called an acquisition.1 Then again, a consolidation depicts two firms, of roughly a similar size, that unite to push ahead as a solitary new element, instead of remain independently claimed and worked. This 19 CU IDOL SELF LEARNING MATERIAL (SLM)

activity is known as a consolidation of equivalents. A valid example: Both Daimler-Benz and Chrysler stopped to exist when the two firms combined, and another organization, DaimlerChrysler, was made. The two organizations' stocks were given up, and new organization stock was given in its place. Consolidations and acquisitions, or M&A for short, includes the way toward joining two organizations into one. The objective of consolidating at least two organizations is to attempt to accomplish collaboration – where the totally different (organization) is more noteworthy than the amount of its parts (the previous two separate substances). Consolidations happen when two organizations unite. Such exchanges commonly occur between two organizations that are about a similar size and which perceive benefits different proposals as far as expanding deals, efficiencies, and capacities. The details of the consolidation are frequently genuinely well-disposed and commonly consented to and the two organizations become equivalent accomplices in the new pursuit. Acquisitions happen when one organization purchases another organization and folds it into its activities. Now and again the buy is cordial and at times it is antagonistic, contingent upon whether the organization being gained trusts it is in an ideal situation as a working unit of a bigger endeavour. 2.2 HORIZONTAL MERGER A horizontal merger refers to a business consolidation that occurs between entities that operate in the same industry. Competition is usually higher among corporates operating in the same space. It means that the synergies and potential gains in market share are much more significant for entities merging. Horizontal Merger Definition Horizontal merger refers to the merger that occurs between the organizations that operate in the same or similar industries and generally the competitors in the industry opt for such type of mergers for reasons such as to increase the share in the market, to bring economies of scale, to reduce the level of competition, etc. A horizontal merger is a type of merger that happens between companies operating in the similar line of business or the same industry. In other words, it happens when companies that offer the same or similar products or services come together under single ownership. Most companies going for such type of merger are competitors operating in the same industry. 20 CU IDOL SELF LEARNING MATERIAL (SLM)

Companies go for a merger for many reasons, both financial and non-financial. These mergers are usually considered for non-financial reasons. However, these types of mergers are more closely monitored by the government since it may lead to a decrease in competition in the industry and may also to oligopoly. A hypothetical example of a horizontal merger may be of Hindustan Unilever and Patanjali. Though both of them operate in the FMCG market, both of them have different product ranges aimed at different demographics of people. Thus, the merger may help them to offer a wider range of products, will increase their revenue substantially, and will lead to an increase in market share. Why do Companies go for Horizontal Merger? 1 – Economies of scale A merger usually occurs when it is expected that the combined entity will have more valuation than the combined valuation of individual entities. The same is on account of synergies in M&A achieved between the 2 companies on account of the merger. Companies go for the horizontal merger to bring in economies of scale by cost reduction. Reduction of the cost may occur by the elimination of redundant processes, operations, or manpower costs. Thus, the company can offer a wider range of products or services in a more efficient and cost-effective manner. 2 – Reduction in competition Companies may also go for this type of merger in order to reduce competition. Thus, it may also lead to the consolidation of a fragmented industry. 3 – Increase in Market Share and Operating Revenue A merger is an inorganic method of growth for a company. When two companies providing same/similar products or services having their individual market share and audience in the market combine to become a single entity, it leads to an increase in market share and thus increases in revenue. 4 – Faster Growth Inorganic growth is a faster method of growth than organic growth. Thus, companies looking out for faster methods of growth usually go for a Horizontal merger. If a company is looking out to increase its product range or market share or increase its geographical reach without investing time and resources to develop it from scratch, it may go for such a merger. 21 CU IDOL SELF LEARNING MATERIAL (SLM)

5 – Business Diversification Companies may go for this merger to seek for business diversification both in terms of product/services range and geographical presence. It may also help a company to enter a new market and to increase its reach demographically. What is the Issues Faced in the Horizontal Merger?  Cultural Integration difficulties: Cultural issues are usually faced in all types of mergers but are especially evident in horizontal mergers. Since the 2 companies operate in similar or the same industry, they both have similar processes and functions, but might have different ways of handling things. Thus, the diverse cultures of the two companies further make it difficult for them to co-exist.  Different management styles: Since the management styles of both the companies must be different, a merger may lead to clashes in both the management and may lead to an unsuccessful merger.  Might create a Monopolistic Market: It may also create a monopoly in the market if two of the biggest players operating in that industry merge together. For example, if a company having a 35% market share merges with a company having a 15% market share, the combined entity will have a 50% market share, thus majorly reducing the competition. Any further increase in the market share of the combined entity will create a monopoly in the market, which may lead to unfair market practices.  Product Cannibalization: The merger of two companies operating in the similar industry may also lead to product cannibalization of either company. If we consider the earlier example of the merger of Patanjali and HUL, considering people are becoming more and more concerned about organic and natural products, products of Patanjali like shampoo may eat in the market of shampoos of HUL. 2.3 VERTICAL MERGER Vertical merger refers to the merger that occurs between two or more business units that operate at different stages of production along with same industry where one is the manufacturer of the product and the other is the supplier of the raw material or services which is required for producing such product. 22 CU IDOL SELF LEARNING MATERIAL (SLM)

A classic example of a vertical merger would be between eBay and PayPal in 2002. EBay is an online shopping and auction website, and PayPal provides services to transfer money and allow users to make online payments. Though both eBay and PayPal were operating in dissimilar businesses, the merger helped eBay to increase the number of transactions and proved a strategic decision overall. A vertical merger is a combination of two or more companies that are into the same industry but produce different products or services along the value chain. It provides a strategic tool for companies to grow their businesses and acquire more control over the steps supporting the supply chain. There are many players involved in a supply chain, mainly including suppliers who provide the raw materials, manufacturers produce the product, distributors then provide it to the retailers who finally sell the product and services to the end customers. So why do companies get into such mergers? Vertical mergers allow companies to use the synergies that ultimately help in operating efficiently, costs getting reduced, and business expansion. It also allows companies to grow their operations into different phases of the supply chain. The opposite of a vertical merger would be a horizontal merger, which involves a merger between two or more companies creating competing products or providing competing services and operate in the same stage of the supply chain. Why Vertical Merger Happens? This type of merger creates value for the merged business that is worth more than the separate businesses under individual ownership. The rationale behind a vertical merger is to increase the synergy and operating efficiency as a single business entity. Some reasons for such a merger could be as follows:  Reduction in operating costs  Higher margins and profits  Better quality control  Better management of information flow  Merger Synergy – Operating, Financial as well as Managerial Synergies 23 CU IDOL SELF LEARNING MATERIAL (SLM)

2.4 CONGLOMERATE MERGER & CONCENTRIC MERGER What Is a Conglomerate Merger? A conglomerate merger is a merger between firms that are involved in totally unrelated business activities. These mergers typically occur between firms within different industries or firms located in different geographical locations. There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions. A conglomerate merger consists of two companies that have nothing in common. Their businesses do not overlap nor are they competitors of one another; however, they do believe that there are benefits in joining their firms. There are many reasons for conglomerate mergers, such as increased market share, synergy, and cross-selling opportunities. These could take form in advertising, financial planning, research and development (R&D), production, or any other area. The overall belief, with any merger, is that the newly formed company will be better than the two separate companies for all stakeholders. Firms also merge to reduce the risk of loss through diversification. However, if a conglomerate becomes too large from acquisitions, the firm's performance can suffer. During the 1960s and 1970s, conglomerate mergers were popular and most plentiful. Today, they are uncommon because of the limited financial benefits. There are many opponents to conglomerate mergers who believe that they bring less efficiency to the marketplace. They primarily believe this happens when larger firms acquire smaller firms, which allows larger firms to acquire more market power as they \"gobble up\" and consolidate certain industries. The banking industry has been an example of this, where large national or regional banks have, for the most part, acquired small, local banks, and consolidated the banking industry under their control. Some famous conglomerate mergers of recent times include Amazon and Whole Foods, eBay and PayPal, and Disney and Pixar. Advantages and Disadvantages of a Conglomerate Merger Advantages 24 CU IDOL SELF LEARNING MATERIAL (SLM)

Despite its rarity, conglomerate mergers have several advantages: diversification, an expanded customer base, and increased efficiency. Through diversification, the risk of loss lessens. If one business sector performs poorly, other, better-performing business units can compensate for the losses. This can also be viewed as an investment opportunity for a company. The merger also allows the firm to access a new pool of customers, thereby expanding its customer base. This new opportunity allows the firm to market and cross-sell new products, leading to increased revenues. For example, Company A, specializing in manufacturing radios, merges with Company B, which specializes in manufacturing watches, to form Company C. Company C now has access to a large customer base to which it can market its products to (e.g., Company A's product to Company B's customers, and vice versa). In addition to increased sales from a larger market, the new firm benefits with increased efficiencies when each merged company contributes best practices and competencies that enable the firm to operate optimally. Disadvantages Although diversification is often associated with reward, it also carries risks. Diversification can shift focus and resources away from core operations, contributing to poor performance. If the acquiring firm is inadequately experienced in the industry of the acquired firm, the new firm is likely to develop ineffective corporate governance policies, poor pricing structures, and an inexperienced, underperforming workforce. Also, it can be challenging for firms within different industries or with varying business models to successfully develop a new corporate culture in which the behaviors and values align with the mission and vision of the new firm. Developing a new corporate culture is not predicated on dissolving pre-existing cultures. Rather, a successful merger of cultures involves a consensus on operating processes, values, and principles that promote the success of the firm and its stakeholders. What is a concentric merger? A concentric merger is a merger in which two companies from the same industry come together to offer an extended range of products or services to customers. These companies often share similar technology, marketing, and distribution channels, and look to the concentric merger to create synergies. This type of transaction can also be called a congeneric merger. 25 CU IDOL SELF LEARNING MATERIAL (SLM)

Reasons for a concentric merger  Larger market share - as the acquirer diversifies, it subsequently gains a larger market share  Diversification of products/services - in a similar vein, the acquirer gains access to the target’s lane in the industry via its products and services  New customers - operating in the arena of diversification of products and larger market share often equates to new customers  Financial gain - all three of the above should lead to improved profits and financial gain; moreover, new technology and shared distribution channels can also result in financial gains / savings 2.5 SUMMARY  The terms consolidations and acquisitions are regularly utilized reciprocally, however they vary in significance.  In an obtaining, one organization buys another inside and out.  On the other hand, a consolidation depicts two firms, of around a similar size, that unite to push ahead as a solitary new substance, instead of remain independently possessed and worked. This activity is known as a consolidation of equivalents.  An organization can be dispassionately esteemed by considering practically identical organizations in an industry and utilizing measurements.  M&As permit organization to develop the business quicker than is conceivable with natural development. M&As appealing when the board unfit to arrange an agreement where advantages surpass expenses of the business relationship, the executives feels need for more prominent power over tasks, and the executives tries to control hazard openness  Personal elements can go into an M&A choice, like sharp conduct by top leaders. Expanding size of organization can build individual pay and improve individual force.  Mergers and acquisitions (M&A) allude to exchanges including two organizations that join in some structure. 26 CU IDOL SELF LEARNING MATERIAL (SLM)

 M&A exchanges can be partitioned by type (level, upward, aggregate) or by structure (legal, auxiliary, solidification).  Valuation is a critical piece of M&A and is a significant place of conversation between the acquirer and the objective.  There are various kinds of consolidations and acquisitions, including upward, flat, congeneric, market-augmentation, item expansion, and aggregate.  The advantages of each are fluctuated, and relying upon your system could include: building economies of scale, expanding portion of the overall industry, diminishing contest, boosting efficiencies, growing product offerings, or enhancing contributions.  There are likewise, notwithstanding, regrettable underlying meanings related with each kind, which ought to likewise be painstakingly considered prior to consolidating organizations.  Understanding which sort of consolidation or obtaining will best help your drawn out system requires a cautious glance at the advantages and disadvantages of each kind, and the help of a specialist consultant for direction. 2.6 KEYWORDS  Horizontal Merger - An even consolidation is a consolidation or business solidification that happens between firms that work in a similar industry. Contest will in general be higher among organizations working in a similar space, which means collaborations and expected additions in piece of the pie are a lot more prominent for consolidating firms.  Conglomerate Merger - A combination consolidation is a consolidation between firms that are associated with absolutely inconsequential business exercises. These consolidations ordinarily happen between firms inside various enterprises or firms situated in various geological areas.  Roll-up Merger - A roll-up consolidation is the point at which a financial backer, for example, a private value firm, purchases up organizations in a similar market and combines them. Roll-up consolidations, otherwise called a \"roll up\" or a \"rollup,\" join numerous little organizations into a bigger element that is better situated to appreciate economies of scale. 27 CU IDOL SELF LEARNING MATERIAL (SLM)

 Purchase Merger - As the name proposes, this sort of consolidation happens when one organization buys another organization. The buy is made with cash or through the issue of some sort of obligation instrument. The deal is available, which draws in the getting organizations, who partake in the tax breaks.  Acquisition - In a straightforward procurement, the getting organization gets the greater part stake in the obtained firm, which doesn't change its name or modify its hierarchical design. 2.7 LEARNING ACTIVITY 1. Discuss about any recent merger which took place in India. ___________________________________________________________________________ ___________________________________________________________________________ 2. Research about the acquisition made by Pfizer. ___________________________________________________________________________ ___________________________________________________________________________ 2.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Name the different kinds of mergers. 2. Write a short note on acquisition. 3. Explain conglomeration. 4. How does merger differ from acquisition? 5. What is asset valuation? Long Questions 1. Explain the types of mergers. 2. Discuss in detail some examples of mergers. 3. Explain the concept of takeovers. State and explain different types of takeover strategies. 28 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Why do companies go for M &A? 5. Discuss the factors involved in a merger. B. Multiple Choice Questions 1. Why could a possible merger between Microsoft and Google be considered a monopoly? a. It could be considered a non-direct horizontal merger. b. It could result in exclusive control over internet browsers, software, etc. c. It could be considered an extremely competitive merger. d. It could have a negative effect on the supply chain. 2. What type of merger occurs when two companies from the same industry decide to combine? a. Vertical b. Perpendicular c. Concentric d. Horizontal 3. Which merger occurs when a firm acquires former suppliers or customers? a. Horizontal Merger b. Vertical Merger c. Product Extension Merger d. Market Extension Merger 4. What is the acquisition of a former competitor known as? 29 a. Vertical Merger b. Horizontal Merger c. Market Extension Merger d. Conglomerate Merger CU IDOL SELF LEARNING MATERIAL (SLM)

5. What is it called when a firm gains access to complementary products through an acquisition? a. Friendly Acquisition b. Conglomerate Merger c. Market Extension Merger d. Product Extension Merger Answers 1-b, 2-d, 3-d, 4-d, 5-d 2.9 REFERENCES References  Angwin, D. (2007) Mergers and Acquisitions. Blackwell, Malden.  Bekier , M.M. , Bogardus , A.J. , and Oldham , T.( 2001 ) Why mergers fail . The McKinsey Quarterly, Number 4.  Bower, J. (2001) Not all M&As are alike. Harvard Business Review, March/April.  Bruner , Robert F. (2005 ) Deals From Hell: M&A Lessons that Rise ab Textbooks  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Patrick A. Gaughan, Mergers, Acquisitions, And Corporate Restructurings Fourth Edition  Dr. Nishi Kant Jha, 2011 Mergers, Acquisitions and Corporate Restructuring Websites  www.investopedia.com  www.debitoor.com 30 CU IDOL SELF LEARNING MATERIAL (SLM)

 www.wikipedia.com  www.icsi.com 31 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT-3 CORPORATE RECONSTRUCTION & RESTRUCTURING STRUCTURE 3.0 Learning Objectives 3.1 Introduction 3.2 Process 3.3 Developing 3.4 Summary 3.5 Keywords 3.6 Learning Activity 3.7 Unit-End Questions 3.8 References 3.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe concept of corporate restructuring.  Explain organization restructuring.  Elaborate the tools of portfolio restructuring.  Describe the nature and scope of Divestitures, spin-offs, demerger and sells offs.  Discuss the nature and scope of Mergers and acquisition Concept in practice. 3.1 INTRODUCTION Corporate Restructuring is a non-repeating exercise for an association however it lastingly affects the business and other concerned offices because of its various contemplations and enormous benefits viz., worked on corporate execution, better corporate administration and so forth The administrative arrangements and the huge number of legal and annoying issues articulate that the experts managing rebuilding ought to have unequivocal and express information on the target approach and point of view of the subject. 32 CU IDOL SELF LEARNING MATERIAL (SLM)

Corporate Restructuring is worried about masterminding the business exercises of the corporate all in all to accomplish certain foreordained targets at corporate level. Such targets incorporate the accompanying: — efficient redirection of the association's exercises; — sending overflow cash from one business to fund beneficial development in another; — taking advantage of between reliance among present or planned organizations inside the corporate portfolio; — hazard decrease; and — improvement of centre abilities. Rebuilding according to Oxford word reference signifies \"to give another construction to, reconstruct or revamp\". According to Collins English word reference, which means of corporate rebuilding is an adjustment of the business methodology of an association bringing about enhancement, shutting portions of the business, and so on, to build its drawn out productivity. Corporate rebuilding is characterized as the interaction engaged with changing the association of a business. Corporate rebuilding can include rolling out sensational improvements to a business by removing or blending offices. It suggests improving the business for expanded proficiency and productivity. At the end of the day, it is a complete interaction, by which an organization can merge its business tasks and reinforce its situation for accomplishing corporate targets collaborations and proceeding as serious and fruitful element. Corporate Restructuring as a Business Strategy Corporate rebuilding is the cycle of fundamentally changing an organization's plan of action, supervisory group or monetary construction to address difficulties and increment investor esteem. Rebuilding might include significant cutbacks or insolvency, however rebuilding is typically intended to limit the effect on workers, if conceivable. Rebuilding might include the organization's deal or a consolidation with another organization. Organizations use rebuilding as a business technique to guarantee their drawn out reasonability. Investors or banks may constrain a rebuilding in the event that they notice the organization's present business techniques as inadequate to forestall a misfortune on their ventures. The idea of these dangers can fluctuate, however normal impetuses for rebuilding include a deficiency of piece of the pie, the decrease of net revenues or decreases in the force of their corporate image. Different helpers of rebuilding incorporate the powerlessness to hold capable experts and significant changes to the commercial centre that straightforwardly sway the enterprise's plan of action. Corporate rebuilding may likewise occur because of the obtaining of the organization by new proprietors. The obtaining might be as a utilized buyout, an unfriendly takeover, or a consolidation of some sort that stays with the unblemished as an auxiliary of the controlling 33 CU IDOL SELF LEARNING MATERIAL (SLM)

organization. At the point when the rebuilding is because of an unfriendly takeover, corporate plunderers frequently carry out a destroying of the organization, auctioning off properties and different resources to make a benefit from the buyout. What stays after this rebuilding might be a more modest substance that can keep on working, though not at the level conceivable before the takeover occurred As a rule, the possibility of corporate rebuilding is to permit the organization to keep working in some way. In any event, when corporate plunderers separate the organization and leave behind a shell of the first design, there is still normally an expectation, what remains can work alright for another purchaser to buy the decreased partnership and return it to productivity. Purpose of Corporate Restructuring  To improve the investor esteem, The organization ought to persistently assess its:  Portfolio of organizations,  Capital blend,  Ownership and  Asset plans to discover freedoms to build the investor's worth.  To centre around resource use and productive speculation openings.  To rearrange or strip less beneficial or misfortune making organizations/items. The organization can likewise improve esteem through capital Restructuring, it can enhance protections that assistance to lessen cost of capital. Monetary Restructuring: The Financial Restructuring might occur because of an extraordinary fall in the business due to the unfavourable monetary conditions. Here, the firm might change the value design, cross-brief delay, obligation overhauling plan and the value possessions. This is done to support the benefit of the firm and support on the lookout. For the most part, the monetary or lawful guides are employed to help the organizations in the dealings. Authoritative Restructuring: The Organizational Restructuring implies changing the construction of an association, like lessening the progressive levels, scaling back the representatives, upgrading the work positions and changing the revealing connections. This is 34 CU IDOL SELF LEARNING MATERIAL (SLM)

done to reduce the expense and pay off the remarkable obligation to proceed with the business tasks in some way. The requirement for a corporate rebuilding emerges in view of the adjustment of organization's possession structure because of a consolidation or takeover, unfavourable monetary conditions, unfriendly changes in business like liquidation or buyouts, over utilized staff, absence of mix between the divisions, and so on. CorporateReconstruction Corporate reconstruction is the halfway destroying or in any case revamping an organization to make it more productive and in this way, more beneficial. The interaction of corporate rebuilding frequently happens after purchase outs, corporate consolidations and acquisitions, divestiture, demergers and chapter 11. In a quickly evolving world, organizations are confronting exceptional disturbance in the worldwide business sectors. Extreme contest, quick mechanical change, and rising securities exchange unpredictability have expanded the weight on administrators to convey prevalent execution and an incentive for their investors. In light of these pressing factors, an expanding number of organizations all throughout the planet are significantly rebuilding their resources, tasks, and legally binding associations with investors, leasers, and other monetary partners. Corporate rebuilding has worked with a great many associations to restore their upper hand and react all the more rapidly and viably to new freedoms and surprising difficulties. Corporate rebuilding significantly affects the a lot more huge number of providers, clients, and contenders that work with rebuilt firms. Perhaps the most high-profile components of the business and speculation universes are corporate rebuilding. On account of consolidations and acquisitions, the potential procuring firm needs to manage the administration and investors of the other firm. Corporate rebuilding is done inside in the firm with the assent of its different partners. Corporate restructuring has gained considerable importance due to the following reasons:  Intense competition  Globalisation  Technological Change  Initiation of Structural reforms in the industry due to LPG (shedding non-core activities) 35 CU IDOL SELF LEARNING MATERIAL (SLM)

 Foreign investment It involves significant re-orientation, re-organisation or realignment of assets and liabilities of the organisation through conscious management action to improve future cash flow stream CorporateRestructuring Corporate restructuring is the cycle of altogether changing an organization's plan of action, supervisory group or monetary design to address difficulties and increment investor esteem. Corporate restructuring is an inorganic development procedure. Corporate restructuring is an activity taken by the corporate element to adjust its capital design or its tasks essentially. For the most part, corporate rebuilding happens when a corporate substance is encountering huge issues and is in monetary risk. The cycle of corporate rebuilding is considered vital to dispose of the entire monetary emergency and improve the organization's presentation. The administration of concerned corporate element confronting the monetary crunches recruits a monetary and legitimate master for warning and help with the exchange and the exchange bargains. Normally, the concerned substance might see obligation financing, tasks decrease, any bit of the organization to intrigued financial backers. Likewise, the requirement for a corporate rebuilding emerges because of the adjustment of the possession construction of an organization. Such change in the possession design of the organization may be because of the takeover, consolidation, unfavourable monetary conditions, unfriendly changes in business like buyouts, insolvency, absence of coordination between the divisions, over utilized faculty, and so forth. Need and Scope of Corporate Restructuring Corporate Restructuring is worried about organizing the business exercises of the corporate overall to accomplish certain foreordained destinations at corporate level. Such targets incorporate the accompanying:  orderly redirection of the firm's activities  deploying surplus cash from one business to finance profitable growth in another  inter-dependence among present or prospective businesses within the corporate portfolio  risk reduction 36 CU IDOL SELF LEARNING MATERIAL (SLM)

 Development of core competencies. Types of Corporate Restructuring Financial Restructuring: This kind of rebuilding might occur because of an extreme fall in the general deals due to the unfriendly monetary conditions. Here, the corporate substance might modify its value design, obligation adjusting plan, the value possessions, and cross- brief delay. This is done to support the market and the productivity of the organization. Organisational Restructuring: The Organizational Restructuring suggests an adjustment of the hierarchical construction of an organization, like lessening its level of the progression, upgrading the work positions, scaling down the representatives, and changing the detailing connections. This sort of rebuilding is never really brought down the expense and to take care of the remarkable obligation to proceed with the business tasks in some way. Characteristics of Corporate Restructuring  To further develop the Balance Sheet of the organization (by discarding the unfruitful division from its centre business)  Staff decrease (by shutting down or auctioning off the unrewarding bit)  Changes in corporate administration  Disposing of the underutilized resources, like brands/patent rights.  Outsourcing its activities, for example, specialized help and finance the executives to a more productive outsider.  Shifting of activities, for example, moving of assembling tasks to cheaper areas.  Reorganising capacities like showcasing, deals, and dispersion.  Renegotiating work agreements to lessen overhead.  Rescheduling or renegotiating of obligation to limit the interest instalments.  Conducting an advertising effort everywhere to reposition the organization with its purchasers. 3.2 PROCESS Process of Corporate Restructuring 37 CU IDOL SELF LEARNING MATERIAL (SLM)

Restructuring an organization is a complex task. The form of restructuring would depend on the main aims of the organization. If the company is paying off a debt, then a different restructuring process will be used. If a company is getting merged with another organisation, then the criteria would be different. The following steps have to be followed in a restructuring process:  Determination In this phase, the main objective of the restructuring exercise is determined. If the restructuring process involves paying a corporate debt, then the debt restructuring procedure can be used. At Enterslice, professionals will determine your business's needs and guide you to carry the proper procedure to restructure your business.  Identification We help your organization identify the strengths and weaknesses. Through thorough research, we establish the need to concentrate on improving the business's strengths.  Implementation Once we analyze your business's strengths, we implement the procedure with the collective strengths of your business. While carrying out this process, we identify potential problems that can be addressed at an early stage in the restructuring process.  Post-Implementation Analysis We conduct a broad-based analysis of the restructuring exercise and understand the effects.  Evaluation of Restructuring In the last step, we monitor your organization and provide post-compliance reporting. 3.3 DEVELOPING Reasons for Corporate Restructuring Corporate restructuring is implemented in the following situations: Change in the Strategy: The management of the distressed entity attempts to improve its performance by eliminating certain divisions and subsidiaries which do not align with the core strategy of the company. The division or subsidiaries may not appear to fit strategically with the company’s long-term vision. Thus, the corporate entity decides to focus on its core strategy and dispose of such assets to the potential buyers. 38 CU IDOL SELF LEARNING MATERIAL (SLM)

Lack of Profits: The undertaking may not be enough profit-making to cover the cost of capital of the company and may cause economic losses. The poor performance of the undertaking may be the result of a wrong decision taken by the management to start the division or the decline in the profitability of the undertaking due to the change in customer needs or increasing costs. Reverse Synergy: This concept is in contrast to the principles of synergy, where the value of a merged unit is more than the value of individual units collectively. According to reverse synergy, the value of an individual unit may be more than the merged unit. This is one of the common reasons for divesting the assets of the company. The concerned entity may decide that by divesting a division to a third party can fetch more value rather than owning it. Cash Flow Requirement: Disposing of an unproductive undertaking can provide a considerable cash inflow to the company. If the concerned corporate entity is facing some complexity in obtaining finance, disposing of an asset is an approach in order to raise money and to reduce debt. Characteristics of Corporate Restructuring To improve the Balance Sheet of the company (by disposing of the unprofitable division from its core business) Staff reduction (by closing down or selling off the unprofitable portion) Changes in corporate management Disposing of the underutilised assets, such as brands/patent rights. Outsourcing its operations such as technical support and payroll management to a more efficient 3rd party. Shifting of operations such as moving of manufacturing operations to lower-cost locations. Reorganising functions such as marketing, sales, and distribution. Renegotiating labour contracts to reduce overhead. Rescheduling or refinancing of debt to minimise the interest payments. Conducting a public relations campaign at large to reposition the company with its consumers. Important Aspects to be considered in Corporate Restructuring Strategies 39 CU IDOL SELF LEARNING MATERIAL (SLM)

Legal and procedural issues Accounting aspects Human and Cultural synergies Valuation and funding Taxation and Stamp duty aspects Competition aspects, etc. Types of Corporate Restructuring Strategies Merger: This is the concept where two or more business entities are merged together either by way of absorption or amalgamation or by forming a new company. The merger of two or more business entities is generally done by the exchange of securities between the acquiring and the target company. Demerger: Under this corporate restructuring strategy, two or more companies are combined into a single company to get the benefit of synergy arising out of such a merger. Reverse Merger: In this strategy, the unlisted public companies have the opportunity to convert into a listed public company, without opting for IPO (Initial Public offer). In this strategy, the private company acquires a majority shareholding in the public company with its own name. Disinvestment: When a corporate entity sells out or liquidates an asset or subsidiary, it is known as “divestiture”. Takeover/Acquisition: Under this strategy, the acquiring company takes overall control of the target company. It is also known as the Acquisition. Joint Venture (JV): Under this strategy, an entity is formed by two or more companies to undertake financial act together. The entity created is called the Joint Venture. Both the parties agree to contribute in proportion as agreed to form a new entity and also share the expenses, revenues and control of the company. Strategic Alliance: Under this strategy, two or more entities enter into an agreement to collaborate with each other, in order to achieve certain objectives while still acting as independent organisations. 40 CU IDOL SELF LEARNING MATERIAL (SLM)

Slump Sale: Under this strategy, an entity transfers one or more undertakings for lump sum consideration. Under Slump Sale, an undertaking is sold for consideration irrespective of the individual values of the assets or liabilities of the undertaking. 3.4 SUMMARY  Corporate Restructuring is characterized as the strategy that is engaged with changing the association of a business.  Corporate Restructuring incorporates rolling out emotional improvements to business by removing or joining of divisions. It recommends adjusting the business for expanded capability and productivity.  Corporate rebuilding is perhaps the most unpredictable and crucial wonders that administration defies. Each organization has two inverse techniques from which to pick: to differentiate or to pull together on its centre business.  While enhancing addresses the extension of corporate exercises, pull together describes a fixation on its centre business. According to this point of view, corporate rebuilding is decrease in enhancement.  Corporate rebuilding is the way toward overhauling at least one parts of an organization. The way toward rearranging an organization might be carried out because of various elements, for example, situating the organization to be more aggressive, endure a presently antagonistic financial environment, or balance the enterprise to move in an altogether new bearing. Here are a few instances of why corporate rebuilding might occur and how might affect the organization.  As such, it is an exhaustive cycle, by which an organization can solidify its business activities and reinforce its situation for accomplishing corporate destinations collaborations and proceeding as a cutthroat and fruitful element.  Restructuring mainly contains cutbacks or insolvency, despite the fact that rebuilding is for the most part had to minimalize the effect on the workers, if conceivable.  Restructuring contains the organization's deal or consolidation with an assorted organization.  The Companies work on rebuilding as the business technique to guarantee their drawn out suitability. 41 CU IDOL SELF LEARNING MATERIAL (SLM)

 Corporate Restructuring is worried about putting business exercises of corporates as the entire to achieve certain set up objective.  Restructuring, restoring, re-designing, modifying and re-manifesting – all are for endurance and development.  During the previous decade, corporate rebuilding has progressively gotten a staple of the executive’s life and a typical marvel all throughout the planet.  Unprecedented number of organizations across the world have rearranged their divisions, rebuilt their resources, smoothed out their activities and turned off their divisions in a bid to spike the organization's presentation.  It has empowered various associations to react rapidly and all the more viably to new freedoms and surprising pressing factors in order to restore their upper hand. 3.5 KEYWORDS  Restructuring - Rebuilding is the corporate administration term for the demonstration of revamping the legitimate, proprietorship, functional, or different constructions of an organization to make it more productive or better coordinated for its current requirements.  Divestiture - In finance, divestiture is the way toward discarding a resource through a deal, trade, or conclusion. A divestiture is a significant method for making an incentive for organizations in the consolidations, acquisitions, and the union cycle.  Spin-off - A corporate side project, otherwise called a twist out, or starburst or hive- off, is a kind of corporate activity where an organization \"separates\" a segment as a different business or makes a subsequent manifestation, regardless of whether the first is as yet dynamic.  Takeover - A takeover happens when one organization makes an effective bid to accept control of or gain another.  Demerger - A demerger is a type of corporate rebuilding wherein the substance's business tasks are isolated into at least one part. It is the opposite of a consolidation or obtaining. 3.6 LEARNING ACTIVITY 42 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Discuss in detail the case study of restructuring of Adani Enterprises. ___________________________________________________________________________ ___________________________________________________________________________ 2. Elaborate the need and scope of corporate restructuring in India after the pandemic. ___________________________________________________________________________ ___________________________________________________________________________ 3.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by restructuring a corporation? 2. Discuss about organize restructuring. 3. What is a divestiture of the company? 4. What is the difference between a spin-off and a takeover? 5. Write the types of take over. Long Questions 1. Discuss in detail the need for corporate reconstruction. 2. Elaborate the types of corporate structuring. 3. Discuss the kinds of merger in detail. 4. What are the characteristics of corporate reconstruction? 5. Write a note on acquisition. B. Multiple Choice Questions 1. When should the restructuring of a corporation be undertaken? a. The restructuring can prevent an unwanted takeover. b. The restructuring creates values for shareholders c. The restructuring is expected to increase the firm's revenue. d. The interests of bondholders are not negatively affected. 43 CU IDOL SELF LEARNING MATERIAL (SLM)

2. What does the \"information effect\" refer to? a. corporation's actions may convey information about its future prospects b. Agents incur costs in trying to obtain information. c. The financial manager should attempt to manage sensitive information about the firm. d. The restructuring is expected to increase the firm's revenue. 3. What is a successful acquisition in the long run? a. Enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage. b. Enables the acquirer to diversify its asset base. c. Increases the market price of the acquirer's stock over what it would have been without the acquisition. d. Increases financial leverage. 4. Bidding companies often pay too much for the acquired firm. To explain this, what does the hubris hypothesis suggest for the bidders? a. Have too little information to make an optimal decision. b. Have big egos and this impedes rational decision-making. c. Have difficulty in thinking strategically over the long-term. d. Are overly influenced by the tax consequences of an acquisition. 5. What is a tender offer? 44 a. A goodwill gesture by a \"white knight.\" b. A would-be acquirer's friendly takeover attempt. c. A would-be acquirer's offer to buy stock directly from shareholders. CU IDOL SELF LEARNING MATERIAL (SLM)

d. Viewed as sexual harassment when it occurs in the workplace. Answers 1-b, 2-a, 3-c, 4-b, 5-c. 3.8 REFERENCES References  Angwin, D. (2007) Mergers and Acquisitions. Blackwell, Malden.  Bekier , M.M. , Bogardus , A.J. , and Oldham , T.( 2001 ) Why mergers fail . The McKinsey Quarterly, Number 4.  Bower, J. (2001) Not all M&As are alike. Harvard Business Review, March/April.  Bruner , Robert F. (2005 ) Deals From Hell: M&A Lessons that Rise ab Textbooks  Mamoria, C.B. (2002). Personnel Management. Mumbai: Himalaya Publishing House.  Patrick A. Gaughan, Mergers, Acquisitions, And Corporate Restructurings Fourth Edition  Dr. Nishi Kant Jha, First Edition 2011 Mergers, Acquisitions and Corporate Restructuring Websites  www.investopedia.com  www.debitoor.com  www.wikipedia.com  www.icsi.com 45 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT-4 CORPORATE DEMERGER, REVERSE MERGER AND TAKEOVER STRUCTURE 4.0 Learning Objectives 4.1 Introduction 4.2 Concept of Demerger 4.3 Modes of Demerger 4.4 Reverse Mergers 4.5 Summary 4.6 Keywords 4.7 Learning Activity 4.8 Unit End Questions 4.9 References 4.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe features of a demerger.  Elaborate the reasons behind a demerger.  Explain types of demergers.  List the key steps in a direct demerger. 4.1 INTRODUCTION A demerger is a type of corporate rebuilding wherein the substance's business tasks are isolated into at least one segment. It is the opposite of a consolidation or procurement. A demerger can happen through a side project by disseminated or moving the offers in an auxiliary holding the business to organization investors doing the demerger. The demerger can likewise happen by moving the significant business to another organization or business to which then that organization's investors are given portions of. Conversely, divestment can 46 CU IDOL SELF LEARNING MATERIAL (SLM)

likewise \"fix\" a consolidation or securing, however the resources are auctions off instead of held under a renamed corporate element. 4.2 CONCEPT OF DEMERGER What is a De-Merger? A de-merger is a corporate restructuring in which a business is broken into components, either to operate on their own, or to be sold or to be liquidated as a divestiture. A de-merger (or \"demerger\") allows a large company, such as a conglomerate, to split off its various brands or business units 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. Understanding De-Mergers De-consolidations are an important procedure for organizations that need to pull together on their most productive units, decrease hazard, and make more noteworthy investor esteem. Examiners will in general limit parent organizations that hold numerous auxiliaries by around 15-30% due to not exactly straightforward capital allotment. De-blending likewise bears the cost of organizations the capacity to have experts oversee explicit specialty units or brands instead of generalists. It is additionally a decent methodology for isolating out specialty units that are failing to meet expectations and making a drag on generally organization execution. De-consolidations can make some confounded bookkeeping issues yet can be utilized to make tax breaks or different efficiencies. Government intercession, for example, to separate syndication, can spike a de-consolidation. Separately, de-consolidations can occur for an assortment of reasons, one of them being that administration knows something that the market is ignorant of and needs to resolve an issue before it discovers. This is apparent in that corporate insiders will in general benefit from de- consolidations. Spin-Offs Quite possibly the most widely recognized ways for a de-consolidation to be executed is a \"side project,\" in which a parent organization gets a value stake in another organization equivalent to their deficiency of value in the first organization. By then, shares are purchased and sold freely, and financial backers have the alternative of purchasing portions of the unit 47 CU IDOL SELF LEARNING MATERIAL (SLM)

they accept will be the most beneficial. An incomplete de-consolidation is the point at which the parent organization holds a fractional stake in a de-blended organization. De-Merger Examples In 2001 British Telecom directed a de-consolidation of its cell phone activities, BT Wireless, trying to help the exhibition of its stock. English Telecom made this move since it was battling under high obligation levels from the remote endeavour. Dr. Pepper Snapple Group, Inc. was made in 2008 when Cadbury Schweppes turned off its U.S. refreshments unit. Australian aircraft Qantas split its worldwide and home-grown activities by means of demerger in 2014. Every unit is run independently. A typical de-consolidation situation would see a utility separate its business into two segments: one to deal with its framework resources and another to deal with the conveyance of energy to purchasers. Side projects were extremely well known in 2014, with almost 50 happening in the United States alone, a large number of them in the utility and sun based force areas. Recent Examples of De-Mergers / Planned De-Mergers  Pfizer selling their new born child nourishment business to Nestle.  Severn Trent Water demerged the waste administration firm Biffa.  PayPal parting from eBay in 2014.  Frasers Group (proprietor of Sports Direct and Evans Cycles) selling their Dunlop image.  Prudential demerging their M&G Investment Fund business  Walmart, the US-based retail goliath, expressed a mean to sell a larger part stake in Asda following the UK contest controllers' choice in 2019 to hinder a proposed consolidation with rival Sainsburys. This occurred in October 2020. Impact of Demergers on Businesses, Workers and Consumers  Businesses Long term – more significant yields/working benefits. However, transient expense of auctioning off a piece of their business. 48 CU IDOL SELF LEARNING MATERIAL (SLM)

 Employees Expected employment misfortunes in case demerger is driven by a longing to control unit costs – albeit new positions may be made e.g., emerging from an effective administration purchase out of a demerged business. Openings for chiefs of recently demerged business.  Consumers Effect on costs relies upon the impact of a demerger on the force of industry contest. 4.3 MODES OF DEMERGER Modes of Demerger • Demerger May Be Partial or Complete: Halfway demerger results when a section/office/division of organization is isolated and moved to at least one new organization/organizations framed with similar investors distributed offers in new organization in same extent as held by them in the demerged organization. Complete demerger results when the entire of the business/undertaking of the current organization is moved to at least one new organization/organizations framed for the reason and the demerged organization is broken down by passing extraordinary goal by its investors. Such organization is twisted up deliberately and vanishes. The investors of the disintegrated organization are given and dispensed offers in the new organization/Companies according to the offer trade proportion authorized under the demerged conspire. • Demerger by Agreement: English Law is very thorough on the issue of 'demerger'. While 'demerger' is influenced by understanding and unique organization is ended up after division, it was held in Cardiff Preserved Coal and Coke Co v. Norton that the outlet can't question the legitimacy of the exchange and in this manner can't need its investors to move to him the offers which have been assigned in the new organization or organizations so he might sell them and utilize the returns to pay the first organization's obligation. • Demerger Under Scheme Of Arrangement: Based on the forces an organization has in its Memorandum, it can complete division or split of its substance in a similar way as it could achieve combination through a plan of course of action under the arrangements of the Companies Act, 1956. The methodology set down in Chapter-V under the Companies Act, 49 CU IDOL SELF LEARNING MATERIAL (SLM)

1956 in regards to Arbitration, Compromises, Arrangements and Reconstruction would be continued on account of division of the organization. • Demerger under Voluntary Winding Up: The first organization which has parted into a few organizations after division could be twisted up deliberately in accordance with the arrangements of Sections 484 to 498 of the Companies Act, 1956. A demerger is the point at which a firm chooses to part into discrete firms. A portion of the vital inspirations for de-consolidation incorporate: 1. focusing on centre organizations to reduce expenses and hence further develop overall revenues and gets back to investors. 2. Reduce the danger of diseconomies of scale and diseconomies of degree by diminishing the scope of capacities in a business and in this way accomplish lower the board costs. 3. Raise cash from resource deals and return it to investors who have value in the business. 4. A cautious strategy to stay away from the consideration of rivalry specialists who may be exploring market power. 4.4 REVERSE MERGERS An opposite consolidation is a consolidation where a privately owned business turns into a public organization by obtaining it. It saves a privately owned business from the convoluted cycle and costly consistence of turning into a public organization. All things considered, it obtains a public organization as a venture and converts itself into a public organization. Nonetheless, there is another point to the idea of an opposite consolidation. At the point when a more vulnerable or more modest organization obtains a greater organization, it is an opposite consolidation. What's more, when a parent organization converges into its auxiliary or a misfortune making organization secures a benefit making organization, it is additionally named as an opposite consolidation. An opposite consolidation resembles addressing fundamental mathematical problems of 1+2 or 2+1, where the appropriate response would be same. There are numerous guidelines and consistence on privately owned businesses changing over to public organizations. Thus, the opposite consolidation goes about as a simple mode for a privately owned business to change over into a public organization. 50 CU IDOL SELF LEARNING MATERIAL (SLM)