corporate restructuring(2)

7/31/2019 Corporate Restructuring(2)

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Corporate RestructuringCR can be defined as any change in the business capacity or

portfolio that is carried out by an inorganic route or change in thecapital structure or any change in the ownership of or controlover the management of the company or combination.

Main forms of Corporate Restructuring

M&A

Demerger (Sell-off, spin-off)

Divestiture

Acquisition

Joint ventures

Carve Out

Consolidation

Buy back of securities



Joint Ventures

It is an arrangement in which two or more companies contribute to the equity capital of anew company in pre decided proportion.

A joint venture is a business agreement in which parties agree to develop, for a finite time, anew entity and new assets by contributing equity. They exercise control over theenterprise and consequently share revenues, expenses and assets.

The venture can be for one specific project only or a continuing business relationship. TheJV is dissolved when that goal is reached.

A joint venture takes place when two parties come together to take on one project. In a jointventure, both parties are equally invested in the project in terms of money, time, andeffort to build on the original concept.

Some major JV include:

Sony /Ericson - Electronics Boeing/Mitsubishi/Fuji/Kawasaki – Small aircraft

GM/Toyota – Auto Segment

3M/Harris - Copiers



JVs are usually described as having the following characteristics:

Contribution by partners of money, property, effort, knowledge, skill etc to common

undertaking

Joint property interest in the subject matter of the entp

Right of mutual control or management of the entp

Expectation of profits and right to share the profits.

Hence each partner must have something unique and important to offer the venture and

provide a source of gain to the other participants. However the sharing of information

and or assets required to achieve the objectives need not extend beyond the JV.

Rationale foe JVs

To augment insufficient financial or technical ability to enter a particular LOB

To share generic Mgnt skills in organising, planning etc

To diversify risk

To obtain distribution channels

To achieve economies of scale

To extend activities with smaller investment than if done independently



Advantages of joint venture

enterprise are that perhaps one party may buy goods at a much cheaper rate, but he has no

capital; a second person may perhaps advance the requisite capital, but has no business

acumen; while a third individual is a good salesman and can sell the goods readily at a

good margin. In a case like this, it is advantageous for all the three to combine theirenergy and work for mutual gain.

Disadvantages of Joint Ventures

are the possibility of being ripped off or disappointed by unprofessional JV partners, and

hurting your reputation and/or customers and associates by associating with the wrong

people

Reasons for failure:

The hoped technology never developed

Inadequate pre planning for JV

Managers with expertise in one company refused to share the knowledge with their

counterparts in JV

Inability to share control or compromise on difficult issues

Risky projects



When determining whether or not to embark on a joint venture, it is important to ensure both

parties are a match with the projected client base. In a joint venture, each party must

compliment the other in business. Sometimes, a misunderstanding or a lack of

communication can destroy a joint venture.

Therefore, it is necessary for both parties to be capable of communicating what they are able

to offer to the project and what their expectations are.

Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In

short, both parties must be committed to focusing on the future of the partnership, rather

than just the immediate returns. Ultimately, short term and long term successes are both

important. In order to achieve this success, honesty, integrity, and communication within

the joint venture are necessary.

corporate restructuring(2)

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