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 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
To provide proactive leadership
Empowerment of employees
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 firms ability to generate
Leverage Core Competence: With the
concept of organisational 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 realised 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
Empowerment: Empowerment is a major
constituent of any restructuring process. Delegation and
decentralised decision making provides companies with effective
management 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.
Types of Restructuring
Business firms engage in a wide range of activities
that include expansion, diversification, collaboration,
spinning off, hiving off, mergers and acquisitions. Privatisation
also forms an important part of the restructuring process.
The different forms of restructuring may include:
Change in Ownership
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.
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.
Corporate Control: Corporate control
includes buy-backs and greenmail where the management of
the firm wishes to have complete control and ownership.
Change in Ownership: Change in ownership
may either be through an exchange offer, share repurchase
or going public.
An example: Essar Steel Announces Restructuring
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
Other restructuring programs initiated by
the company included:
The company, subsequent to its restructuring
program, expects to be in a position to make net profits,
declare dividends and enhance shareholder value.