Big Picture: What Is Corporate Restructuring?
• Corporate restructuring refers to major changes in:
o Ownership
o Capital structure
o Asset structure
o Organizational structure
• Goal: increase firm value or restore viability
• M&A is one form of corporate restructuring, not the only one
Types of Corporate Restructuring
1. Financial Restructuring
• Focus on the balance sheet
• Examples:
o Increasing leverage
o Debt renegotiation
o Share repurchases
• Objectives:
o Lower cost of capital
o Improve financial flexibility
o Act as takeover defense
2. Operational Restructuring
• Focus on operations and assets
• Examples:
o Divestitures
o Spin-offs
o Workforce reduction
o Reorganization
,3. Ownership Restructuring
• Change in control or ownership
• Examples:
o Mergers
o Acquisitions
o Buyouts (LBO, MBO)
M&As as a Form of Corporate Restructuring
• M&As are strategic tools to:
o Redeploy assets
o Improve efficiency
o Achieve synergies
• Can involve:
o Assets only
o Entire firms
• Can be:
o Friendly
o Hostile
Corporate Restructuring Terminology (Legal Perspective)
Merger
• Combination of two or more firms
• Usually firms of comparable size
• All but one firm cease to exist
Key Features
• Legally simple
• Requires approval by shareholders of both firms
, • Negotiated and mostly friendly
• Mutual consent is required
Statutory Merger
• One firm survives
• Surviving firm:
o Automatically assumes all assets and liabilities
o Target firm disappears legally
Subsidiary Merger
• Target becomes a subsidiary of the acquirer
• Target:
o Remains a legal entity
o Operates under its own brand
• Acquirer has ownership and control
Consolidation
• A new firm is created
• All original firms cease to exist
• Technically not a merger
Acquisition (Takeover)
• Control obtained by purchasing voting shares
• Acquirer can be:
o Firm
o Individual(s)
Tender Offer
• Public offer to buy shares
, • Made directly to shareholders
• Hostile if:
o Board approval is not obtained
Corporate Restructuring Terminology (Economic Perspective)
Horizontal Mergers
• Firms operate in the same industry
• Main rationale:
o Economies of scale
o Economies of scope
o Synergies (best practices)
• Risk:
o Anticompetitive behavior
• Strong regulatory oversight (EU competition law)
Vertical Mergers
• Firms operate at different stages of the value chain
• Objective:
o Reduce transaction costs
o Improve coordination
o Increase information efficiency
Conglomerate Mergers
• Firms in unrelated businesses
• Motivation:
o Diversification
• Distinction:
o Industrial conglomerates vs investment companies
• Corporate restructuring refers to major changes in:
o Ownership
o Capital structure
o Asset structure
o Organizational structure
• Goal: increase firm value or restore viability
• M&A is one form of corporate restructuring, not the only one
Types of Corporate Restructuring
1. Financial Restructuring
• Focus on the balance sheet
• Examples:
o Increasing leverage
o Debt renegotiation
o Share repurchases
• Objectives:
o Lower cost of capital
o Improve financial flexibility
o Act as takeover defense
2. Operational Restructuring
• Focus on operations and assets
• Examples:
o Divestitures
o Spin-offs
o Workforce reduction
o Reorganization
,3. Ownership Restructuring
• Change in control or ownership
• Examples:
o Mergers
o Acquisitions
o Buyouts (LBO, MBO)
M&As as a Form of Corporate Restructuring
• M&As are strategic tools to:
o Redeploy assets
o Improve efficiency
o Achieve synergies
• Can involve:
o Assets only
o Entire firms
• Can be:
o Friendly
o Hostile
Corporate Restructuring Terminology (Legal Perspective)
Merger
• Combination of two or more firms
• Usually firms of comparable size
• All but one firm cease to exist
Key Features
• Legally simple
• Requires approval by shareholders of both firms
, • Negotiated and mostly friendly
• Mutual consent is required
Statutory Merger
• One firm survives
• Surviving firm:
o Automatically assumes all assets and liabilities
o Target firm disappears legally
Subsidiary Merger
• Target becomes a subsidiary of the acquirer
• Target:
o Remains a legal entity
o Operates under its own brand
• Acquirer has ownership and control
Consolidation
• A new firm is created
• All original firms cease to exist
• Technically not a merger
Acquisition (Takeover)
• Control obtained by purchasing voting shares
• Acquirer can be:
o Firm
o Individual(s)
Tender Offer
• Public offer to buy shares
, • Made directly to shareholders
• Hostile if:
o Board approval is not obtained
Corporate Restructuring Terminology (Economic Perspective)
Horizontal Mergers
• Firms operate in the same industry
• Main rationale:
o Economies of scale
o Economies of scope
o Synergies (best practices)
• Risk:
o Anticompetitive behavior
• Strong regulatory oversight (EU competition law)
Vertical Mergers
• Firms operate at different stages of the value chain
• Objective:
o Reduce transaction costs
o Improve coordination
o Increase information efficiency
Conglomerate Mergers
• Firms in unrelated businesses
• Motivation:
o Diversification
• Distinction:
o Industrial conglomerates vs investment companies
