CORPORATE RESTRUCTURING

1. ABSTRACT

Corporate Restructuring has recently faced widespread criticism. Due to its low-turnaround
success rate and the sharp increase in Insolvency filings. The objective is to Operational
synergy and efficient allocation of managerial capabilities and infrastructure. The scopes of
study are gaining complementary strengths and widen the portfolio of addressable market.
Restructuring is the latest buzzword in corporate circles. Companies are vying with each other
in search of excellence and competitive edge, experimenting with various tools and ideas. The
changing national and international environment is radically changing the way business is
conducted. Moreover, with the pace of change so great, corporate restructuring assumes
paramount importance.

The conclusion can be derived is that Corporate restructuring, in turn, can lead to a review of
the overall entity structures which typically have been set up in growth phases driven by
imperatives that have changed now. Until up to a couple of years back, the news that Indian
companies having acquired American-European entities was very rare. However, this scenario
has taken a sudden U turn. Nowadays, news of Indian Companies acquiring foreign
businesses is more common than other way round.

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2. EXECUTIVE SUMMARY

The concept of restructuring involves embracing new ways of running an organisation and
abandoning the old ones. It requires organisations to constantly reconsider their organisational
design and structure, organisational systems and procedures, formal statements on
organisational philosophy and may also include values, leader norms and reaction to critical
incidences, criteria for rewarding, recruitment, selection, promotion and transfer.

The major reasons for restructuring are:

 To induce higher earnings
 To leverage core competencies
 Divestiture and Networking
 To ensure clarity in vision, strategy and structure
 To provide proactive leadership
 Empowerment of employees
 Reengineering Process

Today, Corporate Restructuring is the latest buzzword in corporate circles. Companies are
vying with each other in search of excellence and competitive edge, experimenting with
various tools and ideas. The changing national and international environment is radically
changing the way business is conducted. Moreover, with the pace of change so great,
corporate restructuring assumes paramount importance.
The main purpose is induce higher earnings, to leverage core competencies, Divestiture and
Networking, To ensure clarity in vision, strategy and structure, To provide proactive leadership,
Empowerment of employees, Reengineering Process.

In recent years, several companies around the world have restructured their assets,
operations, liabilities, and other obligations in response to new competitive challenges in their
markets or major shifts in their business environment. The scope of corporate restructuring has
become increasingly global, as heightened competition in international product, capital, and
labor markets put tremendous pressure on companies worldwide to increase their

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competitiveness and maximize their market value. Corporate restructuring requires managers
to enact fundamental, sometimes radical changes in the firms’ operations, assets, and
corporate strategy. It should also address the firm’s underlying real business problems.
Managers’ ability to create value in a restructuring situation often depends on their ability to
understand and balance the competing interests of the multiple stakeholders. Understanding
and adopting best practices in corporate restructuring is the key to achieving competitive
advantage and creating value for shareholders

Restructuring is the corporate management term for the act of reorganizing the legal,
ownership, operational, or other structures of a company for the purpose of making it more
profitable, or better organized for its present needs. Alternate reasons for restructing include a
change of ownership or ownership structure, demerger, or a response to a crisis or major
change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also
be described as corporate restructuring, debt restructuring and financial restructuring. The
conclusion is that a company that has been restructured effectively will theoretically be leaner,
more efficient, better organized, and better focused on its core business with a revised
strategic and financial plan. If the restructured company was a leverage acquisition, the parent
company will likely resell it at a profit if the restructuring has proven successful.

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3. RESEARCH METHODOLOGY

3.1 Title of the Study: - Corporate Restructuring by Indian companies. Deal-making

activity in corporate India is set to pick up pace in the coming months as companies prepare to
shed units not core to their main business to raise cash to survive the economic downturn or
acquire assets at bargain-basement prices.

3.2 Duration of the Project

Its takes approx 1 month to finalize the report.

3.3 Objective of Study

 Operational synergy and efficient allocation of managerial capabilities and
infrastructure.
 Economics of scale by expansion /diversification.
 Improve corporate performance to bring it at par with competitors by adopting the
radical changes brought out by it.

3.4 Type of research: - It refers to the search for knowledge. It can be defined as scientific
and systematic search for information on a specific topic. It is careful investigation or inquiry
through search for new facts of any branch of knowledge.
Research plays an important role in the project work. The results of the project are completely
based upon the research of the facts and figures collected through the different ways of
research.
That is why it is also called a movement from known to unknown. Research is the original
contribution to the existing stock of knowledge. This section includes the overall research
design, the sampling procedure, the data collection method, the field method, and analysis and
procedure.

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RESEARCH is a scientific and systematic search for pertinent information on a specific topic. It
is also said to be the pursuit of truth with the help of study, observation, comparison and
experiment. Research methodology is a way to systematically solve the research problem.

Research Design: - A research design is a framework or blueprint for conducting the

research project. It details the procedures necessary for obtaining the required information,
and its purpose is to design a study that will test the hypotheses of interest, determine possible
answers to the research questions, and provide the information needed for decision making.
Conducting exploratory research, precisely defining the variables, and designing appropriate
scales to measure them are also a part of the research design.

Research can classify in one of three categories:

 Exploratory research
 Descriptive research
 Causal research

These classifications are made according to the objective of the research. In some cases the
research will fall into one of these categories, but in other cases different phases of the same
research project will fall into different categories.

1. Exploratory research has the goal of formulating problems more precisely, clarifying
concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming
hypotheses. Exploratory research can be performed using a literature search, surveying
certain people about their experiences, focus groups, and case studies. Exploratory research
studies would not try to acquire a representative matter, but rather, seek to interview those who
are knowledgeable and who might be able to provide insight concerning the relationship
among variables. Case studies can include contrasting situations or benchmarking against an
organization known for its excellence. Exploratory research may develop hypotheses, but it
does not seek to test them. Exploratory research is characterized by its flexibility.

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2. Descriptive research is more rigid than exploratory research and seeks to describe
users of a product, determine the proportion of the population that uses a product, or predict
future demand for a product. As opposed to exploratory research, descriptive research should
define questions, people surveyed, and the method of analysis prior to beginning data
collection. In other words, the who, what, where, when, why, and how aspects of the research
should be defined. Such preparation allows one the opportunity to make any required changes
before the costly process of data collection has begun.

There are two basic types of descriptive research: longitudinal studies and cross-sectional
studies. Longitudinal studies are time series analyses that make repeated measurements of
the same individuals, thus allowing one to monitor behavior such as brand-switching. However,
longitudinal studies are not necessarily representative since many people may refuse to
participate because of the commitment required. Cross-sectional studies sample the
population to make measurements at a specific point in time. A special type of cross-sectional
analysis is a cohort analysis, which tracks an aggregate of individuals who experience the
same event within the same time interval over time. Cohort analyses are useful for long-term
forecasting of product demand.

3. Causal research seeks to find cause and effect relationships between variables. It
accomplishes this goal through laboratory and field experiments.

3.5 Scopes
o Stock market
 Activist shareholders
 Pension funds
o Increasing competition
 Global
 Technological
o Change in regulation

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4. CORE STUDY

4.1 Introduction

Corporate Restructuring is known as downsizing, rationalizing, streamlining and, perhaps most

commonly, restructuring. With a bow to the diet culture, some prefer to call it just plain
slimming down. By whatever name it goes, a compulsion is sweeping through corporate
America to bring about fundamental, long-lasting changes in the way it does business. U.S.
corporations have always undergone periodic cutbacks in times of recession or strain, but this
time the tone and scope of the effort are vastly different. Today, restructuring is the latest
buzzword in corporate circles. Companies are vying with each other in search of excellence
and competitive edge, experimenting with various tools and ideas. The changing national and
international environment is radically changing the way business is conducted. Moreover, with
the pace of change so great, corporate restructuring assumes paramount importance.

The concept of restructuring involves embracing new ways of running an organization and
abandoning the old ones. It requires organizations to constantly reconsider their organizational
design and structure, organizational systems and procedures, formal statements on
organizational philosophy and may also include values, leader norms and reaction to critical
incidences, criteria for rewarding, recruitment, selection, promotion and transfer.

The past couple of years have seen a spate of mergers and acquisitions by Indian IT
companies. Companies have taken to M&A for different reasons. Many companies have
undertaken M&A to grow in size by adding manpower and to facilitate overall expansion.

This research studies the most important corporate restructuring activities from a financial
perspective. It exhibits the following points:

• How valuation plays a central role in the strategic decision-making process

• Carry out valuation analysis of complex corporate/financial structures
• Be familiar with the most common forms of corporate restructuring, as well as
Understand their different costs and benefits

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• Analyze the terms of a restructuring deal in a knowledgeable way, understanding its value
implications as well as the incentives and motivations of the major participants

In recent years, several companies around the world have restructured their assets,
operations, liabilities, and other obligations in response to new competitive challenges in their
markets or major shifts in their business environment. The scope of corporate restructuring has
become increasingly global, as heightened competition in international product, capital, and
labor markets put tremendous pressure on companies worldwide to increase their
competitiveness and maximize their market value. Corporate restructuring requires managers
to enact fundamental, sometimes radical changes in the firms’ operations, assets, and
corporate strategy. It should also address the firm’s underlying real business problems.
Managers’ ability to create value in a restructuring situation often depends on their ability to
understand and balance the competing interests of the multiple stakeholders. Understanding
and adopting best practices in corporate restructuring is the key to achieving competitive
advantage and creating value for shareholders

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4.2 The major reasons for corporate restructuring are:

• To induce higher earnings
• To leverage core competencies
• Divestiture and Networking
• To ensure clarity in vision, strategy and structure
• To provide proactive leadership
• Empowerment of employees
• Reengineering Process

# Induce Higher Earnings: The two basic goals of corporate restructuring may include
higher earnings and the creation of corporate value. Creation of corporate value largely
depends on the firm’s ability to generate enough cash.

# Leverage Core Competence: With the concept of organizational learning gaining

momentum, companies are laying more emphasis on exploiting the rise on the learning curve.
This can happen only when companies focus on their core competencies. This is seen as the
best way to provide shareholders with increased profits.

# Divestiture and Networking: Companies, while keeping in view their core

competencies, should exit from peripherals. This can be realized through entering into joint
ventures, strategic alliances and agreements. Ensure Clarity in Vision, Strategy and Structure:
Corporate restructuring should focus on vision, strategy and structure. Companies should be
very clear about their goals and the heights that they plan to scale. A major emphasis should
also be made on issues concerning time the frame and the means that influence their success.

# Provide Proactive Leadership: Management style greatly influences the restructuring

process. All successful companies have clearly displayed leadership styles in which managers
relate on a one-to-one basis with their employees.

# Empowerment: Empowerment is a major constituent of any restructuring process.

Delegation and decentralized decision making provides companies with effective management
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information system. Reengineering Process: Success in a restructuring process is only

possible through improving various processes and aligning resources of the company.
Redesigning a business process should be the highest priority in a corporate restructuring
exercise.

4.3 Types of Corporate Restructuring

Business firms engage in a wide range of activities that include expansion, diversification,
collaboration, spinning off, hiving off, mergers and acquisitions. Privatization also forms an
important part of the restructuring process. The different forms of restructuring may include:

1. Expansion
2. Sell-Off
3. Corporate Control
4. Change in Ownership

1. Expansion: Expansions may include mergers, acquisitions, tender offers and joint
ventures. Mergers per se, may either be horizontal mergers, vertical mergers or conglomerate
mergers. In a tender offer, the acquiring firm seeks controlling interest in the firm to be
acquired and requests the shareholders of the firm to be acquired, to tender their shares or
stock to it. Joint ventures involve only a small part of the activities of the companies involved.

 Merger or amalgamation

Two companies are independent. Within past 2 years one company cannot have owned 50%
of another the acquisition should be a single step transaction. The consideration should be in
shares. 90% of shareholders of the target company should remain. No disposal of significant
part of business within 2 years.

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 Takeovers/Acquisitions
Gaining control of the utilization of corporate assets and resources. This can be done either by
taking control through share holding or by purchase of the asset itself. The accounting
treatment differs depending upon the method of takeover.

 Joint Ventures/strategic alliances

2. Sell-Off: Sell-Off may either be through a spin-off or divestiture. Spin-Off creates a new
entity with shares being distributed on a pro rata basis to existing shareholders of the parent
company. Split-Off is a variation of Sell-Off. Divestiture involves sale of a portion of a
firm/company to a third party.Spin offs A Company distributes all the shares it owns in a
subsidiary to its own shareholders implying creation of two separate public companies with
same proportional equity ownership. Sometimes, a division is set up as a separate company.

 Split offs

 Split ups
Parent company has many 100% or near 100% subsidiaries. Each of them is spun off as a
public company.

3. Corporate Control: Corporate control includes buy-backs and greenmail where the
management of the firm wishes to have complete control and ownership.

4. Change in Ownership: Change in ownership may either be through an exchange offer,

share repurchase or going public.

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An example: Essar Steel Announces Restructuring Plans Essar Steel Limited recently
announced its restructuring plan through which the company plans to reduce its interest
burden. The company has also initiated several other steps including increasing production
and lowering operating costs as a part of its restructuring program. The company also
announced the development of a strategy addressing its debt burden-reduction and
lengthening the maturity period.

 Divestitures
 Equity carve out
A parent has substantial holding in a subsidiary. It sells part of that holding to the public.
"Public" does not necessarily mean a shareholder of the parent company. Thus the asset item
"Subsidiary Investment" in the balance-sheet of the parent company is replaced with cash.
Parent company keeps control of the subsidiary but gets cash. This may be the first stage of a
two-stage divestment transaction.

 Privatization
 Buy back of shares

Leveraged buy out

a party is interested in buying out the stake in a company but lacks financial resources it forms
a team of banks who are willing to fund the idea. The team structures the deal after
discussions with the company. The deal structure involves the following steps:

The sponsor of the idea forms a shell company. The only asset is cash. The debt-equity ratio is
high. It is not listed. Shell Company purchases the shares from existing shareholders of the
target mostly paying for in cash. Target and Shell Company merge. Target is thus de-listed.
The merged company is tightly managed for cash. All debts are repaid in short period of, say,
1-5 years. Sponsor takes the company public again, sells his stakes at a profit and exits

other restructuring programs initiated by the company included:

• Raising equity through rights issue
• Reduction in usage of power
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4.4 Mergers and acquisitions in channels

The company, subsequent to its restructuring program, expects to be in a position to make net
profits, declare dividends and enhance shareholder value.Inorganic Growth Strategies.
Although mergers and acquisitions in IT channels have been far and few between, expect
many more in the days to come.

The recent merger of Locus and Choice Solutions has brought into focus the inorganic growth
strategies channel companies are leveraging to fuel future growth. The two Hyderabad-based
companies have merged to create an entity that has not only doubled their turnover and skill-
set base but also given them a pan-India presence.

Although M&A are not new to channels, there have been few so far. However, industry pundits
believe that the market is now poised for consolidation and that this could lead to a
spate of M&As in the next couple of years. One company to realize the consolidation trend is
Mumbai-based security solution provider Trident InfoTech, which, in September 2006, merged
with Mumbai-based security consultancy firm, MIEL e-Security for an undisclosed amount.

To grow, channels have to consolidate, M&As becoming a norm. Decision to merge with MIEL
was based on providing customers end-to-end solutions. MIEL had a very strong presence in
the security and consultancy space, while companies were strong in the products and
solutions space. The merger has helped in owning a customer as now & the expertise to
provide a complete security solution from consultancy, security, solutions and training. As the
new head of sales and marketing at MIE company is looking at a few more M&As going
forward. They have set an aggressive growth target to tap into the enormous opportunities,
and this will be achieved by organic and inorganic growth strategies, Another company that
has used the M&A route to grow inorganically is the Delhi-based Silicon Interix—a merger
between Silicon Comnet and Interix Solutions. The two combined their operations in 2005 to
leverage on each other’s core strengths. Then in 2006 it merged with two other group
companies, OA Compserve and software solutions subsidiary Preemptive Software to form a
single entity with a turnover of Rs 100 crore.
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IPOs of IT channel companies

IPO Size Issue Market
IPO CMP EPS for 52 Week low &
Company (Rs Price Capitalization
Data (Rs) FY2007(Rs) high
crore) (Rs) (Rs crore)

Paradyne
Dec- Info 14 42 213 16.88 60-270 241
05 Tec
h

Jan-
Tulip IT 108 120 590 37.66 244-958 2387
06

Accel
Nov- Fro 42 75 77 5.72 44-120 168
06 ntli
ne

Jan- Redington

07 Indi 150 113 344 10.3 118-414 2680

July- Allied

07 Digi 86 190 434 13.3 294-453 722

tal

July-
Omnitech 35 105 144 9.11 118-183 180
07
CMP is Current Market Price as on October 15, 2007. EPS is Earnings Per Share on an
annualized basis for FY07. P/E is Price to Earnings Ratio.
Source: Company Web sites and online financial portals

Size does matter. The merger gave us the size to raise more funds through debt...it also
increased our ability to execute large projects. Silicon and Interix had similar skill-sets but a
different customer base. While Silicon was strong in the defense and government segment,
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Interix had a strong base in the private sector. The merger helped us consolidate costs and
improve profitability.

Another firm proponent of consolidation in channels is Saurin Shah, the MD of Ashtech India:
expect major consolidation in IT channels, and this will lead to a significant increase in mergers
and acquisitions. Expect 8-10 mergers within the next two years. Company identified M&A as
an inorganic growth strategy. They are on the lookout for a company that provides us access to
newer markets in terms of geography, customer base or cross-leveraging of complementary
skill-sets.

Another company that is proactively considering an M&A is Mumbai-based Pentagon Systems.

Company is in already in an advanced stage of negotiations with a couple of companies and
expects to close a deal within six months. Mumbai-based on track Solutions is also on the
lookout for a company that is a strategic fit to its inorganic growth plans. “M&A remains high on
our growth agenda. Over the past 12 months we have been propositioned by several
companies for equitable mergers. A few of them have been serious proposals, but we didn’t
find the right strategic fit in them. Finding the right partner is key,
the reasons for M&As in IT channel companies are many. Over the past four years several
companies have grown at a rapid pace of over 50 percent CAGR. To sustain such a high
growth rate on an expanded turnover base isn’t easy, and hence many companies are looking
at M&As as an inorganic growth strategy. For the next level of growth, it’s imperative that
companies expand to newer geographies, add new technology skill-sets, and target new
customer segments. M&As can help achieve these effectively,
Agrees Ranjan Chopra, MD, Team Computers, say that M&As are usually driven by several
reasons. The first is the entry into new geographies, the second is to acquire synergistic
products, solutions and services, and the third is to attain a financial stature to achieve
economies of scale and consolidate costs.

For instance, Ontrack has clearly identified increase in geographical reach as its primary M&A
objective. Achieving a countrywide presence tops our growth agenda. Setting up new branches

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is not only time-consuming but also cost-intensive and the gestation is longer. In contrast, M&A
with the right partner can cut market-entry time.

In the case of Pentagon the main driver for acquisition is to build its software solutions skill-
sets. Company acquires a company that has a strong software play. We are already strong in
hardware infrastructure integration services. A software integration and management company
will help us strengthen our offerings to customers.

Many believe that the increasing shortage of skill-sets in the market could lead to more
consolidation leading to mergers and acquisitions. “The scale of opportunities is so huge that
channel companies have to look at inorganic growth strategies to tap them. Acute lack of skill-
sets may also become an enabler for M&As as many companies think it’s better to acquire
skill-sets than to hire, train and retain.

Domino effect According to industry pundits, another factor that could further drive M&As in
the channels is the successful debut of a few IT channel companies on the Indian bourses.
Since December 2005, six companies in the channel space have raised Rs 435 crore from
IPOs.
Those who have raised money from the market include Redington India, which raised Rs 150
crore from its public offering; Tulip IT, which raised Rs 108 crore; Allied Digital, which raised Rs
86 crore; and Omnitech Solutions, which raised Rs 35 crore. What’s more, all these IPOs got a
fantastic response from investors. For instance, the Allied IPO was oversubscribed by 60
times, while Redington was oversubscribed by 43 times. Even after listing, many of them have
continued their upward momentum on the stock market.

The successful listing of these companies with strong channel play has helped increase the
visibility of the segment among the financial community, and this spells good news for all of us.
Several private equity investors are looking to invest in IT channel companies. Suddenly,
financial investors want to know about our plans and if we are open for an equity stake, the
increasing interest among private equity investors may act as a catalyst for more M&As. It’s
usually seen that when private equity investors buy in, they look at various options to maximize
the valuations of the company before it goes public. And this could even mean M&As.
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Strategic interest

It’s not just the financial investors but also strategic investors who are on the prowl to acquire
domestic IT companies or forge JVs. Chennai-based Value Point Systems has received
several proposals from strategic investors in India and abroad. A Guru raj, senior vice
president of this company say that they have been approached by a few companies in the US
and Europe either for a strategic stake or buyout. While one reason for them to come to India
is to partake in the growth of the domestic IT market, another reason is to create an offshore
network operations center to provide remote management services for their customers in the
US, and he added that too sees substantial activity on this front. They are looking to have a
global play in infrastructure managed services. Tying up with system integrators in the US and
Europe to offer remote management services is definitely one option.

Allied Digital has already announced that it plans to acquire a tech BPO company in the US,
and sees a huge opportunity in providing RMS services globally. The company has allocated a
substantial Rs 32 crore of its IPO proceeds for setting up a global delivery center housing a
network operations center, security operations center and a 250-seat tech BPO service.
The company has also forged a strategic tie-up with Singapore-based E-Cop (a pioneer in
managed security services), and plans to leverage it to garner international business.

Easier said than done

Channel partners admit that while consolidation through M&As is the right way forward, there
are several challenges along the way. “M&As in channels is not an easy job. Most businesses
are entrepreneur-driven; hence it’s important for the two individuals to vibe and has a common
outlook for their organizations. Many companies lack comprehensive systems and processes,
making it all the more difficult to integrate operations. There is a lot of pain involved in the
process.

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While it’s stylish to talk about M&As today, most companies have not given much thought to
the integration process. “To merge it’s important to have entrepreneurs who share a common
vision. Otherwise the M&A may backfire

There are undoubtedly challenges in executing M&As in the channels. However, most channel
companies agree that consolidation is the only way forward. To succeed in future, they say,
channel companies will have to learn to play the M&A game—pretty soon.

4.5 COMING TO CORPORATE INDIA

Deal-making activity in corporate India is set to pick up pace in the coming months as
companies prepare to shed units not core to their main business to raise cash to survive the
economic downturn or acquire assets at bargain-basement prices.

The economic slowdown has triggered a wave of corporate restructuring, as India Inc readjusts
to new market realities after four years of heady growth that saw the economy expand by more
than 9% on an average for three straight years up until the last financial year to end-March.

The boom years, coupled with easy liquidity conditions then, gave much of Indian industry the
confidence to expand, and emboldened them to stray into areas outside their core businesses.
With the slowdown putting pressure on balance sheets, companies are looking to consolidate
operations and increase cash flow.

Some are hiving off non-core assets and raising cash to cope with difficulties in raising capital
from other sources, while others are more comfortable re-organizing ahead of an eventual
economic recovery. “During a slowdown, survival is the key,” said by Bharti Gupta Ramola,
head of transactions practice, PricewaterhouseCoopers, adding that restructuring was rife and
was being driven by a need to cut costs and conserve cash during a period of financial stress.

Some of these factors, in turn, can lead to a review of the overall entity structures which
typically have been set up in growth phases driven by imperatives that have changed now.

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The CFO of a commodities company, who asked not to be named, added: “This year, many
companies will try to focus on their core business, and the theme will be consolidation. M&A
activity will pick up as a lot of opportunities will come up to acquire assets at attractive
valuations.”

4.6 EXAMPLES OF CORPORATE RESTRUCTURING

Companies like Unitech and Wockhardt are notable examples. Unitech, hit hard by the real
estate market slump, has been forced to sell assets like hotels and offices, and induct private
equity at the individual project level. The sale of Marriot Courtyard hotel in Gurgaon is for Rs
231 crore. It also sold a majority stake in the mobile telecom venture to Norway’s Telenor as
part of its drive to cut its debt pile.

Similarly, pharma firm Wockhardt, which was referred to the corporate debt restructuring cell of
ICICI Bank due to a heavy debt burden and liquidity problem, is also selling non-core assets
like its hospital business to raise liquidity.
There is a momentum in divestment of non-core assets. This is happening because of cash
flow mismatch or difficulty in raising capital for projects which can be seen in sectors like real
estate.

Asset rationalization is not just restricted to cash-stretched firms. Healthier firms too are
reorganizing their businesses, but for different, and mainly strategic, reasons.

In the last one month, the Hero group has exited two joint ventures to focus on its core two-
wheeler business. It bid goodbye to an insurance venture with Ergo and a commercial vehicle
venture with Daimler, citing economic downturn and the need to focus on its core business.

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Aditya Birla Nuvo is in talks to sell its electrical insulators business to UK-based private
equity group 3i as part of its plan to exit non-core areas. Similarly, Pantaloon Retail is hiving off
its retail and fashion businesses into separate subsidiaries, which will help it raise capital to
fund its expansion plans.

 Aditya Birla Nuvo Ltd acquires Apollo Sindhoori Capital

Report Overview
Aditya Birla Nuvo Ltd acquired a 56% interest, or 31.024 mil ordinary shares, in Apollo
Sindhoori Capital Investments Ltd, a securities brokerage firm, for 64.08 Indian rupees
($1.468) in cash per share, or a total value of 1.998 bil rupees ($45.547 mil). The transaction
was approved by the board of directors.

Acquirer: Aditya Birla Nuvo Ltd

Acquirer Business Description: Mnfr textiles
Acquirer SIC Code: 2299 - Textile goods, nec
Target Name: Apollo Sindhoori Capital
Target Business Description: Sec bkrg firm
Target SIC Code: 6211 - Security brokers, dealers, and flotation companies

 Aditya Birla Nuvo Ltd acquires Birla Sun Life Distribution Co

Report Overview
Aditya Birla Nuvo Ltd (AB) acquired the remaining 50.0001% interest, which it did not already
own in Birla Sun Life Distribution Co Ltd (BS), a provider of financial services, from its joint
venture partner Sun Life Financial Inc of Canada. On completion, BS became a wholly-owned
subsidiary of AB.

Acquirer: Aditya Birla Nuvo Ltd

Acquirer Business Description: Mnfr textiles
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Acquirer SIC Code: 2299 - Textile goods, nec

Target Name: Birla Sun Life Distribution Co
Target Business Description: Pvd final svcs
Target Ultimate Parent: Aditya Birla Nuvo Ltd
Target SIC Code: 6289 - Security and commodity services, nec

 Aditya Birla Nuvo Ltd M&A Summary

Aditya Birla Nuvo Ltd has made 5 acquisitions while taking stakes in 6 companies. Aditya Birla
Nuvo Ltd has 4 divestitures during this period.

Year Acquisitions Stakes Divestitures

2009 1 2 1
2008 0 0 0
2007 0 0 0
2006 2 1 0
2005 0 1 0
2004 0 0 0
2003 1 0 0
2002 0 0 0
2001 0 2 1
2000 0 0 0
1999 1 0 1
1998 0 0 0
1997 0 0 1
Total 5 6 4

Some of India’s biggest industrial groups are also not immune from this trend, except that in
their case it’s driven more to conserve management bandwidth and position themselves ahead
of a recovery than to raise cash.

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Reliance Industries (RIL) is looking at a separate structure for its fuel retail business in
which it could take on a partner and help it shift accumulated losses from fuel retailing away
from its books. ICICI Bank is also learnt to be considering options to hive off its point-of-sales
units.

Mahindra & Mahindra has already spun off its land and naval businesses into wholly-
owned subsidiaries of Mahindra Defense Systems, its defense business vertical. It will offer
26% in both subsidiaries to global partners. “Many corporations are moving from preparing for
the slowdown to preparing for the eventual upturn and recovery

Preparing for a recovery may mean shedding of non-core businesses which may be
performing fine as well as acquisition of assets which maybe available at very attractive
valuations that will benefit the growth strategy. There are many studies that show that the best
deals are made in downturns.

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4.7 MOTIVATION FOR INDIAN COMPANIES FOR MERGERS AND

ACQUISITIONS

The past couple of years have seen a spate of mergers and acquisitions by Indian IT
companies. Companies have taken to M&A for different reasons. Abhinav Singh attempts to
understand the rationale behind Indian IT companies making acquisitions and getting merged

The main purpose for M&A

Meet end-to-end solution needs

 Opportunity for growth

 Need for faster growth
 Access to capital and brand
 Gaining complementary strengths
 Acquire new customers
 Need to enhance skill sets
 Expand into new areas
 Widen the portfolio of addressable market

M&A activity is on the rise in the Indian IT industry with the last couple of years having seen a
few large mergers and acquisitions. Whether it was the merger of Polaris with Aristech or
Wipro's acquisition of Spectra mind and GE Medical Systems Information Technology (India) or
Mphasis BFL's acquisition of a Chinese firm, mergers and acquisitions in the Indian IT industry
are here to stay and more are expected to follow in the near future. Why do Indian companies
opt for M&A? The reason is that:

The size factor

Many companies have undertaken M&A to grow in size by adding manpower and to facilitate
overall expansion. The Polaris-OrbiTech merger saw a spurt in the merged entity’s revenues

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from $60 million to $125 million. The merger also added 1,400 employees to Polaris, taking the
total employee strength to 4,000.

Similarly, for Bangalore-based vMoksha Technologies, the logic behind the acquisition of two
US-based companies, Challenger Systems and X media, was to increase in size by widening
its customer base. Pawan Kumar, chairman and CEO of vMoksha Technologies said that “The
size of a company does matter when interacting with customers and clients. These
acquisitions added 120 people to our staff.”

The acquisition of China-based Navion software helped Mphasis BFL increase its employee
strength by 85 people and expand its business in the region. Similarly, when software services
giant Wipro acquired BPO player Spectra mind, it helped the company expand into the BPO
space.

In the same vein, Bangalore-based Mascot Systems’ acquisition of US-based eJiva and
Hyderabad-based Aqua Regia enhanced the company’s value proposition and made it globally
competitive. With the acquisition of eJiva and Aqua Regia, the total employee strength of
Mascot Systems increased from 1,700 to 2,000.

To gain new customers

one likely reason behind M&A has been to gain new customers. Polaris Software had six major
customer wins after it acquired the Intellectual Property Rights (IPR) of OrbiTech’s Orbi suite
framework of banking solutions. VMoksha also saw a rise in the number of its customers (four
new customers) due to acquisitions as it expanded considerably in the US market and
leveraged on the existing customer base. Mphasis also added new customers in the Japanese
and Chinese markets after the acquisition of Navion.

The need for skill set enhancement

the need for skill set enhancement seems to be a major reason for companies to merge and
make new acquisitions. The Polaris-OrbiTech merger helped in combining skill sets of both

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companies, which in turn led to growth and expansion of the merged entity. While Polaris
Software was looking for a specialized product suite, OrbiTech was looking forward to efficient
marketing and service support for its products. Post-merger, Polaris got the Orbi suite
framework and combined it with its service expertise to win more customers. After the merger,
Polaris has become a large, specialized company in the banking, financial services and
insurance (BFSI) space, offering solutions, products and transaction services. Polaris has had
some recent post-merger wins, including ABN-AMRO Bank, Kuwait Commercial Bank and
Deutsche Leasing.

Wipro acquired GE Medical Systems Information Techno-logy (India) to leverage its

specialization in the health science domain. The intellectual property that Wipro acquired from
the medical systems software company provided it with a platform to expand its offerings in the
Indian and the Asia-Pacific healthcare IT market. Similarly, when Wipro acquired the global
energy practice of American Management System and the R&D divisions of Ericsson, it
acquired skilled professionals and a strong customer base in the areas of energy consultancy
and telecom R&D.

VMoksha Technologies’ acquisition of two US-based companies helped it to increase its size,
and leverage on the expertise of the acquired companies. One of the acquired companies is
very strong in banking and we leveraged this factor to gain some good banking customers.

Likewise Bangalore-based Mascot Systems was benefited by the technical expertise of eJiva
and Aqua Regia, the two companies it recently acquired. The acquisition also helped Mascot to
extend its offerings through a portfolio of complementary services, technologies and skills.

Expand their market reach into new geographies. Many Indian companies have carried out
acquisitions and mergers to expand their reach in international markets and
to spread across different geographies.

Mphasis BFL, through its acquisition of Navion software wants to expand its operations into the
Chinese and Japanese markets. The need for developing a near-shore centre for the
Japanese market triggered this acquisition. Besides this, plan to tap the skilled labor force in
China to improve our prospects in the region and also plan to tap the local market at a later

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stage and use the Chinese base as an alternative centre for our offshore services in the
region.”

Similarly, vMoksha Technologies after acquiring the two US-based companies has cemented
its base in the US market and plans further expansions from here. With the acquisitions, we
also expanded our reach in the US market besides India. Since the majority of workforce in the
acquired companies was Indian, integration was much easier and smooth

For Future Hold

Many Indian software players see a rise in the number of mergers and acquisitions by Indian
IT companies in the near future. A rise in the number of mergers and acquisitions by Indian IT
companies is likely in the near future due to competition ushered in by the influx of MNC IT
companies. In order to compete with global IT majors setting up base in India and to expand
their global reach, more and more Tier-1 Indian IT companies would acquire global Tier-2 IT
companies. Similarly global Tier-1 IT companies in order to penetrate deeper into the Indian
market would look at Tier-2 Indian IT companies in the near future. VMoksha would always
keep its options open for further acquisitions and would do so as and when it gets good
opportunities.

Many players feel that Indian IT companies look at M&as due to the size factor, the niche
factor or for expanding their market reach. Many are also of the opinion that acquisitions help
in the inorganic (and quicker) growth of the business of a company and the decision to acquire
or grow organically depends on the business targets that the companies have set for
themselves. Some feel that in today’s competitive economic environment, size and focus are
factors that matter for surviving the onslaught of competition. In this scenario, mergers and
acquisitions have emerged as key growth drivers in the Indian software services landscape.
Apart from this, the importance, size, pricing pressures and global companies consolidating
and building offshore capabilities have made M&A relevant for Indian IT enterprises.

But Mphasis terms the whole spate of mergers and acquisitions as premature and says that
although there will be a few acquisitions and mergers in the near future there won’t be a whole

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lot of them. However, according to him, Mphasis will always be on the lookout for further
acquisitions.

Mergers and acquisitions are primarily aimed at expanding a company’s business and earning
profits for it. Acquisitions bring in more customers and business, which in turn brings in more
money for the companies thus helping in its overall expansion and growth. More and more
companies will move towards acquisitions for a fast-paced growth.

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RECENT MERGERS & ACQUISITIONS

Company Merged with/Acquired Reason/Benefits
Polaris Merged with OrbiTech Acquired IPR of OrbiTech's range of Orbi
Banking product suite.
Wipro Acquired Spectra mind Aimed at expanding in the BPO space, the
acquisition gave Wipro an opportunity to
run a profitable BPO business.
Wipro Acquired global energy It acquired skilled professionals and a
practice of American strong customer base in the area of energy
Management Systems consultancy.

Wipro Acquired the R&D divisions It acquired specialized expertise and

of Ericsson people in telecom R&D.
Wipro GE Medical Systems It acquired IP from the medical systems
(India) company, which in turn gave it a platform to
expand its offerings in the Indian and Asia
Pacific healthcare IT market.
vMoksha Challenger Systems & X Primarily aimed at expanding its customer
media base. The company also leveraged on the
expertise of the companies in the BFSI
space.
Mphasis Acquired China-based Expanded its presence in the Japanese
Navion software and the Chinese markets. It also plans to
use it as a redundancy centre for its Indian
operations.
Mascot Systems Acquired US-based eJiva Expanded in size and leveraged on
and Hyderabad-based technical expertise of the acquired
Aqua Regia companies. Acquisitions have helped the
company in offering multiple services and
expanding its customer base considerably.
4.8 THE CHANGING FACE OF INDIAN BUSINESS

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Until up to a couple of years back, the news that Indian companies having acquired American-
European entities was very rare. However, this scenario has taken a sudden U turn.
Nowadays, news of Indian Companies acquiring foreign businesses is more common than
other way round.

Buoyant Indian Economy, extra cash with Indian corporate, Government policies and newly
found dynamism in Indian businessmen have all contributed to this new acquisition trend.
Indian companies are now aggressively looking at North American and European markets to
spread their wings and become the global players.

The Indian IT and ITES companies already have a strong presence in foreign markets;
however, other sectors are also now growing rapidly. The increasing engagement of the Indian
companies in the world markets, and particularly in the US, is not only an indication of the
maturity reached by Indian Industry but also the extent of their participation in the overall
globalization process.

Here are the top 10 acquisitions made by Indian companies worldwide:

Country Deal value ($

Acquirer Target Company Industry
targeted ml)

Tata Steel Corus Group plc UK 12,000 Steel

Hidalgo Novelis Canada 5,982 Steel

Videocon Daewoo Electronics Corp. Korea 729 Electronics

Dr. Reddy’s
Beta harm Germany 597 Pharmaceutical
Labs

Suzlon Energy Hansen Group Belgium 565 Energy

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Country Deal value ($

Acquirer Target Company Industry
targeted ml)

Kenya Petroleum Refinery

HPCL Kenya 500 Oil and Gas
Ltd.

Ranbaxy Labs Terapia SA Romania 324 Pharmaceutical

Tata Steel Natsteel Singapore 293 Steel

Videocon Thomson SA France 290 Electronics
VSNL Teleglobe Canada 239 Telecom

If calculating top 10 deals,then it account for nearly US $ 21,500 million. This is more than
double the amount involved in US companies’ acquisition of Indian counterparts. Graphical
representation of Indian outbound deals since 2000.

Some of the Highlights of Indian Mergers and Acquisitions scenario as it stands:

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Indian outbound deals, which were valued at US$ 0.7 billion in 2000-01, increased to US$ 4.3
billion in 2005, and further crossed US$ 15 billion-mark in 2006. In fact, 2006 will be
remembered in India’s corporate history as a year when Indian companies covered a lot of
new ground. They went shopping across the globe and acquired a number of strategically
significant companies. This comprised 60 per cent of the total mergers and acquisitions (M&A)
activity in India in 2006. And almost 99 per cent of acquisitions were made with cash
payments.

MERGERS AND ACQUISITIONS

The total M&A deals for the year during January-May 2007 have been 287 with a value of US$
47.37 billion. Of these, the total outbound cross border deals have been 102 with a value of
US$ 28.19 billion, representing 59.5 per cent of the total M&A activity in India.

The total M&A deals for the period January-February 2007 have been 102 with a value of US$
36.8 billion. Of these, the total outbound cross border deals have been 40 with a value of US$
21 billion.

There were 111 M&A deals with a total value of about US$ 6.12 billion in March and April 2007.
Of these, the number of outbound cross border deals was 32 with a value of US$ 3.41 billion.

There were 74 M&A deals with a total value of about US$ 4.37 billion in May 2007. Of these,
the number of outbound cross border deals was 30 with a value of US$ 3.79 billion.

The sectors attracting investments by Corporate India include metals, pharmaceuticals,

industrial goods, automotive components, beverages, cosmetics and energy in manufacturing;
and mobile communications, software and financial services in services, with pharmaceuticals,
IT and energy being the prominent ones among these.

Indian Companies invest $20 billion in M&A abroad

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Indian companies had spend $20 billion to fund the 147 mergers and acquisitions deals
abroad in 2006, according to Dialogic. In comparison, such deals in last full year accounted for

less than $5 billion, with 45 M&A deals. The biggest contributor to this year's deals was the
Tata - Corus deal which was valued at about $9.8 billion. This was followed by ONGC's $1.4
billion takeover of Campos Basin Oils Fields and 50 percent stake in Omimex de Colombia
ranked second and third biggest deals. United Breweries $0.75 billion offer for UK-based

distiller Whyte & Mackay and the takeover of Daewoo Electronics by Videocon for $0.72 billion

formed the top five deals.

Metal and steel was the most targeted industry with $10 billion via nine deals, followed by Oil
and Gas with $2.4 billion through seven deals. $11 billion were targeted at UK alone with 21
deals, whereas $1.8 billion in the US for 29 deals. ABN Amro was the leader being adviser for
3 deals for $10.9 billion, followed by Deutsche Bank with $9.8 billion through just one deal.

Mergers and Acquisitions in Indian companies have attained new heights this year and will
help Indian companies to go global, enter growth markets with lower risks.

4.9 Strategic restructuring and outsourcing: The effect of mergers

and acquisitions and LBOs on building firm skills and capabilities

A conceptual framework examining the relationship between corporate restructuring and

outsourcing of key value-adding activities to external suppliers and partners is presented. The
model proposes that the restructuring process serves as a catalyst to a series of complex
changes within the firm that make outsourcing an attractive alternative to internal investments
in the development of new skills and capabilities. High levels of merger and acquisition activity,
as well as leveraged buy-outs (LBOs), are expected to produce a diminished resource base for
organizational learning and technology development.

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Continued reliance on outsourcing, in turn, can potentially "lock out" the firm from participating
in future technologies and new industries.

During the 1980s and early 1990s, corporate restructuring was a popular strategy. Some of the
more popular types of restructuring included mergers and acquisitions and leveraged buy-outs
(LBOs) that substitute large amounts of debt for equity financing. Although corporate
restructurings have been hailed as innovative and necessary for corporate renewal (Jensen,
1988; Lubatkin, 1987), others have expressed concern about the potential tradeoffs resulting
from excessive focus on asset redeployment and leverage as opposed to asset creation (Hitt,
Hoskisson & Ireland, 1990; Porter, 1987; Smart & Hitt, 1994).

The issue of whether certain types of corporate restructuring enhance or mitigate the
development of new products, technologies, skills and capabilities is highly relevant because a
number of U.S. firms have ceded market share and industry initiative to global competitors
(Franko, 1989; Hamel & Prahalad, 1989). However, merger and acquisition and LBO activity
continues.

The empirical evidence regarding the eff ects of corporate restructurings on competitive
advantage and development of new skills and capabilities is mixed. Although acquisitions and
portfolio restructurings, in particular, may increase financial returns and shareholder value
(Jensen, 1988; Lubatkin, 1987; Lubatkin & Rogers, 1989; Salter & Weinhold, 1979; Singh &
Montgomery, 1987), even highly related acquisitions often encounter difficulties in building
synergy and integration (Hill, Hitt & Hoskisson, 1988; Hopkins, 1987).

Other researchers have argued that extensive acquisitions gradually blunt the firm's sources of
innovation and the strength of its core businesses (Franko, 1989; Hitt et al., 1990; Roll, 1986),
by directing management's focus away from building core skills and capabilities and towards
integrating assets. Similarly, Zahra and Fescina (1991) note the conflicting evidence
concerning the relationship between LBOs and the firm's commitment to R&D spending and its
core business.

While several studies have noted the benefits of LBOs in e nhancing efficiency (Bull, 1989;
Hall, 1988; Hansen & Hill, 1991; Magowan, 1989), others have noted the negative effects of
LBOs on innovation, R&D and human capital, by limiting the amount of capital available for
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investing in new technologies and developing new skills (Graves, 1988; Long & Ravenscraft,
1993). Porter (1987) argued that firms engaging in extensive restructurings and acquisitions
are not well-positioned to build future sources of internal competitive strengths.

The purpose of this work is to build a conceptual framework depicting the relationship between
certain restructuring activities (acquisitions, LBOs) and outsourcing. In general, outsourcing
refers to the reliance on external sources for manufacturing components and other value-
adding activities (often capital-intensive).

Therefore, outsourcing involves reliance on external skills and capabilities. Unfortunately,

outsourcing can erode the firm's potential for organizational learning and development of new
technologies, particularly those skills necessary for the development of new business and core
capabilities. Bettis, Bradley and Hamel (1992) argued cogently that improper use of
outsourcing is contributing to the decline of many U.S. and West European firms. It refers to a
hollowing of firms created by outsourcing. Restructurings through acquisitions or LBOs may
accentuate the tradeoff between internal development of new skills to foreign partners or
suppliers in particular. Prahalad and Hamel (1990) termed core competencies as the
"collective learning in the organization, especially how to coordinate diverse production skills
and integrate multiple teams of technologies" (p. 85). Acquisitions and LBOs create conditions
within the firm that make outsourcing core skills more attractive than building those skills and
capabilities internally.

Unfortunately, while there has been an increasing amount of outsourcing activity among U.S.
firms, there has been little attention given to this activity in the academic literature.

However, outsourcing has a number of unintended consequences that deserve scrutiny. While
outsourcing often produces an increase in short-term returns, it also results in lower
investments in the development of new technologies and new skills (e.g., continued
maintenance and updating of firms' core competencies).

Although many firms that have begun to outsource their non-core or supporting activities (e.g.,
accounting, payroll, MIS) have reported satisfying results, an excessive managerial focus on
outsourcing as a "panacea" for problems in building or renewing core skills and capabilities is
likely to denigrate the firm's potential to learn new technologies and to develop new
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capabilities. Careful outsourcing of supporting or tangential activities may help firms

concentrate resources to build core skills. In addition, outsourcing of operational activities
reduces a firm's risk during economic downturns.

Alternatively, it also may deter a firm's ability to take advantage of opportunities during
economic upturns. However, corporate-wide restructuring efforts may blur the distinction
between core and non-core activities. Furthermore, popular types of corporate restructuring
often promote stronger tendencies to outsource core skills. Our purpose is to build a
conceptual framework that explains the relationships between corporate restructuring
(acquisitions and LBOs) and outsourcing of core skills and capabilities. Theoretical
propositions are derived from the framework to promote and facilitate future research.

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5. SWOT

SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying
the objective of the business venture or project and identifying the internal and external factors
that are favorable and unfavorable to achieving that objective.

Strengths: attributes of the organization that is helpful to achieving the objective.

Weaknesses: attributes of the organization those are harmful to achieving the objective.

Opportunities: external conditions those are helpful to achieving the objective.

Threats: external conditions those are harmful to achieving the objective.

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Internal and external factors

The aim of Corporate Restructuring SWOT analysis is to identify the key internal and external
factors that are important to achieving the objective. Corporate Restructuring SWOT analysis
groups key pieces of information into two main categories:

Internal factors – The strengths and weaknesses internal to the organization.

External factors – The opportunities and threats presented by the external environment.

The internal factors may be viewed as strengths or weaknesses depending upon their impact
on the organization's objectives. What may represent strengths with respect to one objective
may be weaknesses for another objective. The factors may include all of the 4P's; as well as
personnel, finance, manufacturing capabilities, and so on. The external factors may include
macroeconomic matters, technological change, legislation, and socio-cultural changes, as well
as changes in the marketplace or competitive position. The results are often presented in the
form of a matrix. Corporate Restructuring SWOT analysis is just one method of categorization
and has its own weaknesses. For example, it may tend to persuade companies to compile lists
rather than think about what is actually important in achieving objectives. It also presents the
resulting lists uncritically and without clear prioritization so that, for example, weak
opportunities may appear to balance strong threats. It is prudent not to eliminate too quickly
any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value
of the strategies it generates. A SWOT item that produces valuable strategies is important. A
SWOT item that generates no strategies is not important.

Strengths and weaknesses

← Resources: financial, intellectual, location
← Cost advantages from proprietary know-how and/or location
← Creativity (ability to develop new products)
← Valuable intangible assets: intellectual capital
← Competitive capabilities
← Effective recruitment of talented individuals

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Opportunities and threats

← Expansion or down-sizing of competitors......LPK
← Market trends
← Economic conditions
← Expectations of stakeholders
← Technology
← Public expectations
← All other activities or in activities by competitors
← Criticisms by outsiders
← Changes in markets

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6. CONCLUSION
Restructuring is the corporate management term for the act of reorganizing the legal,
ownership, operational, or other structures of a company for the purpose of making it more
profitable, or better organized for its present needs. Alternate reasons for restructing include a
change of ownership or ownership structure, demerger, or a response to a crisis or major
change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also
be described as corporate restructuring, debt restructuring and financial restructuring.
In corporate restructuring, valuations are used as negotiating tools and more than third-party
reviews designed for litigation avoidance. This distinction between negotiation and process is a
difference between financial restructuring and corporate finance.
A company that has been restructured effectively will theoretically be leaner, more efficient,
better organized, and better focused on its core business with a revised strategic and financial
plan. If the restructured company was a leverage acquisition, the parent company will likely
resell it at a profit if the restructuring has proven successful

There are some steps which company should follow:

1. Ensure the company has enough liquidity to operate during implementation of a

complete restructuring.
2. Produce accurate working capital forecasts.

3. Provide open and clear lines of communication with creditors who mostly control the
company's ability to raise financing.

4. Update detailed business plan and considerations.

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7. BIBILIOGRAPHY

www.weblog.intoworld.com
www.cb.ca/story/business.com
www.zalis.com
www.traceproject.org
www.mire_restructuring.edu
www.turnaroundforum.com
www.googlesearch.com
www.en.wikipedia.org
www.manyworld.com
www.bookrags.com

Books:
o G. Sudarsana Reddy
o Srinivasan and Murugan
o M R Agarwal
o Khan and Jain

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