2. Corporate Restructuring
Any change in a company’s:
1. Capital structure,
2. Operations Structure, or
3. Ownership Structure
So where is the value coming
from (why restructure)?
3. Strategic Benefit
Tax Benefits
Utilization of Surplus Funds
Managerial Effectiveness
To Limit Competition
Gain Economies of Scale
Diversification
To Increase Sales & Market Share
Earnings Growth
Motivations to Corporate Restructuring
7. Horizontal Merger occurred when two companies
competing in the same line of Business Activities.
Vertical Merger occurred when two companies
producing different goods or services one specific
finished product in
Horizontal & Vertical Merger
1. MCB Bank - NIB Bank
2. Faysal Bank - RBS Bank
3. Summit Bank - Atlas/Mybank
4. Gadoon Textile - Fazal Textile
5. Bestway Cement – Pak Cement
Horizontal Merger Vertical Merger
1. PSO - Pakistan Refinery
8.
Concentric & Conglomerate Merger
Concentric Merger occurred when two companies have
the same customers coming together to share some
common expertise but they offer different products.
Conglomerate Merger occurred when two companies
entirely from different industries and producing different
goods.
Concentric Merger
Suzuki MotorCycles Pakistan Ltd.
Pak Suzuki Motor Company Ltd.
Conglomerate Merger
1. Associated Services Ltd &
Macter International Ltd.
2. Libaas Textile Limited &
Ghani Global Glass Ltd.
3. D.G Khan Cement Ltd. &
D.G Electric Ltd.
9. Acquisition may be defined as an act of acquiring
assets (i.e. manufacturing unit or brands) or
management of a company by another company
without any combination of businesses or
companies.
Acquisition
Examples
1. ICI Pakistan Limited acquired the manufacturing facility units and
brands of gastroenterology, multivitamins, antifungals, antibiotics
and urology from Wyeth Pakistan Limited in 2012.
2. JS Bank Limited acquired majority shares of JS Investment Limited
in order to gain management control in 2012.
10. A tender offer is a formal offer to purchase a given
number of company shares at a specific price and this
tender offer can be used in two situations as
(1) directly approach the target company for its takeover
(2) directly approach the shareholders.
Tender Offer
1. Naubahar Bottling Co. Pvt. Ltd. offer tender @ Rs. 52 to purchase
9,115, 456 (96%) shares of Baba Farid Sugar Mills Ltd.
2. Bahria Town Pvt. Ltd. offer tender @ Rs. 15.87 to purchase 6,357,000
(14.42%) shares of Escorts Investment Bank Ltd.
3. Fossile Energy Pvt. Ltd. offer tender @ Rs. 23 to purchase 1,668,000
(18%) shares of Clover Pakistan Limited.
Examples
11. This involves two companies coming together
and forming a new company whose ownership
is changed. Generally this strategy is adopted by
MNC’s to enter into foreign companies.
Joint Venture
Examples
1. Friesland Campina Group and Engro Foods Pakistan Ltd. Entered
into a joint venture to form Friesland Engro Pakistan Ltd to
manufacture dairy products in Pakistan
12. Demergers means split or division of a company
with two or more business units into two or
more separate companies.Such divisions may
take place for various internal or external
factors.
Demergers
1. AKZO Nobel Pakistan Ltd. was established due to the scheme of
ICI Pakistan Ltd. demerger of its paint business.
2. IBL Healthcare Ltd. was established due to the scheme of Searle
Pakistan Ltd. demerger of its consumer healthcare products.
3. Glaxo Consumer Healthcare Ltd was established due to the scheme
of GlaxoSmithKline Pakistan Ltd demerger of its consumer
healthcare products.
Examples
13. This type of demerger involves division of company
into wholly owned subsidiary of parent company by
distribution of all its shares of subsidiary company
on a pro-rata basis.
Spin Offs
Examples
Pakistan PTA Ltd., AKZO Nobel Pakistan Ltd., and IBL Healthcare Ltd.
are more appropriate examples in the Pakistan chemical industry.
14. This type of demerger involves the division of the
parent company into two or more separate
companies where parent company ceases to exist
after the demerger. New business entities took place
for parent firm.
Splits Ups
Example
In 2015, The HP Company completed a split up that resulted the
formation of two new entities as
(i) HP Incorporation which deal in PCs, Printers and other devices,
(ii) HP Enterprises which market hardware and software services to
large business.
15. The divestment of a portion of the enterprise or
the firm as a whole.
These are sale of assets, divisions, subsidiaries
of a company for cash or securities to another
corporation or outside party.
Divestitures
Examples
1. Wyeth Pakistan Limited sells its certain assets against cash to ICI
Pakistan Limited.
2. The Searle Pakistan Ltd acquired 100% issued and paid up capital
of Luna Pakistan Pvt. Ltd. from Universal Ventures Pvt. Limited
and was settled against partially through cash, deferred payments,
and approved a call option in favor of UVPL to purchase 25% shares
of Luna.
16. The firm sell a part (20% or less) of its wholly owned
subsidiary’s common stock in the market. This is
similar to spin –offs, expect that some part of share
holders of this subsidiary company is offered to
public through a public issue and the parent company
continues to enjoy control over the subsidiary
company by holding controlling interest in it.
Equity Carve outs
Examples
1. Arif Habib Corporation Ltd. offers its wholly owned subsidiary
Aisha Steel Mills Ltd.’s shares in the market and still continuously
enjoying the management control of its subsidiary company.
2. Jahangir Siddiq Company Ltd. (JSCL) offers its wholly owned
subsidiary of JS Global Capital Ltd shares in the market and still
management control is under the JSCL.
17. Making a public company private through the
repurchase of stock by current management and/or
outside private investor.
Ownership Restructuring
Going Private
1. The Unilever Pakistan Limited went private due to the buyback
program by Unilever’s parent holding company from KSE in 2013.
2. The Climax Engineering Company Limited also went private after
completing the formalities of Buyback of shares in 2019.
3. The Sargodha Spinning Mills Limited also went private after
completing the formalities of Buyback of shares in 2019.
Examples
18. A Leveraged buyout is the acquisition of another
company using a significant amount of borrowed
money to meet the cost of acquisition. The assets of the
company being acquired are often used as collateral for
loans.
Ownership Restructuring
Leverage Buyout
1. The Searle Pakistan Limited will pay the cash and deferred
payments of Luna’s acquisition mainly through the borrowed
money.
Source: Material information published by Searle company
Examples
19.
Motives of Corporate
Restructuring
Limit competition.
Utilise under-utilised market power.
Overcome the problem of slow growth and profitability in
one’s own industry.
Achieve diversification.
Gain economies of scale and increase income with
proportionately less investment.
Establish a transnational bridgehead without excessive
start-up costs to gain access to a foreign market
20. Utilise under-utilised resources–human and physical
and managerial skills.
Displace existing management.
Circumvent government regulations.
Reap speculative gains attendant upon new security
issue or change in P/E ratio.
Create an image of aggressiveness and strategic
opportunism, empire building and to amass vast
economic powers of the company.
Motives of Corporate Restructuring (Cont..)
