Term Paper on Corporate Restructuring | Financial Management

Here is a term paper on ‘Corporate Restructuring’ especially written for school and college students.

Term Paper # 1. Meaning of Corporate Restructuring:

Corporate restructuring is a process by which a firm does an analysis of itself at a point of time and alters what it owes and owns, refocuses itself to specific tasks of performance improvements.

Corporate restructuring would radically alter a firm’s capital structure, asset mix and organization so as to enhance the firm’s value.

The corporate restructuring of a company involves an activity to make the organization more balanced, profitable and enable the company to achieve its objectives in a more simplified manner than previously.

The restructure may include the organizational restructuring like merger, amalgamation, takeover, divestment, expansion, joint venture etc. or financial reorganization like buyback of shares, issue of sweat equity shares, redemption of shares, issue of convertible debentures/preference shares, consolidation of shares, split-up of share value, issue of bonus shares, issue of deep discount bonds etc.

The corporate restructuring is designed to accomplish specific goals and strategies such as:

(i) Profitability and ROI improvement.

(ii) Reducing financial and operational risks.

(iii) Higher economies of scale.

(iv) Continuous improvement in shareholder value.

(v) Optimum break-even point.

Term Paper # 2. Broad Areas of Corporate Restructuring:

a. Financial:

This involves decisions relating to acquisitions, mergers, joint ventures and strategic alliances. This also deals with restructuring the capital base and raise finance for new projects.

b. Technological:

This involves investment in research and development and also alliances with overseas companies to exploit technological strengths.

c. Marketing:

This involves decisions regarding the product market segments where the company plans to operate based on its core competencies.

d. Manpower:

This involves establishing internal structures and processes for improving the capability of the people in the organization to respond to changes.

Term Paper # 3. Basic Reasons for Corporate Restructuring:

1. The globalization of business has compelled companies to open new export houses to meet global competition.

2. Changed fiscal and government policies like deregulation/decontrol has led many companies to go for newer markets and customer segments.

3. Revolution in information technology has made it necessary for companies to adopt new changes for improving corporate performance.

4. Many companies have divisionalized into smaller businesses. Wrong divisionalization strategy has led to revamp themselves.

5. Improved productivity and cost reduction has necessitated downsizing of the work force – both at works and at managerial level.

6. Convertibility of rupee has attracted medium-sized companies to operate in the global markets.

7. Competitive business necessitated to have sharp focus on core business activities, to gain synergy benefits, to minimize the operating costs, to maximize efficiency in operation and to tap the managerial skills to best advantage of the firm.

8. Economies of scale can be achieved by consolidating the capacities and by expansion of activities.

9. By diversification of business activities, the minimization of business risks is possible and it will enable the firm to achieve atleast the minimum target rate of return.

10. By restructuring the enterprise, a sick company can be successfully revived and rehabilitated, and can be brought back to profitable lines.

11. With the integration of sick unit into the successful unit, the adjustment of unabsorbed depreciation and write-off of accumulated loss is possible, there by the successful unit can have strategic tax planning.

12. Corporate restructuring includes financial reorganization, by bringing the company to achieve a desired balance of debt and equity, thereby reduce the overall cost of capital and financial risks.

13. The restructuring process will facilitate to have horizontal and vertical integration, thereby the competition is eliminated and the company can have access to regular raw materials and reaching new markets and accessibility to scientific research and technological developments.

14. The application of information technology and responsibility accounting concepts will facilitate to divide the total enterprise into strategic business units, a better way of achieving the corporate goals.

Term Paper # 4. Implications of Corporate Restructuring:

1. Reduced Number of Players in a Market Segment:

Due to the phenomena like mergers and acquisitions there will be only companies with competitive edge left in a particular field. The weak, inefficient, unviable companies will either die or merged with other stronger players.

2. Emerging of New Look Companies:

The companies coming out of the process of restructuring and renewal exercises will be better equipped to face the transitional companies or enter into alliances with the same.

3. Healthy Economic State of the Nation:

The new acquired better health of the companies will directly contribute to the growth of the national economy.

4. Social Discontent:

Large cases of laying off, shutting down, increasing number of sick units and increasing gap between the rich and the poor may prove to be a great national obstacle in the path of growth of national economy.