Corporate Restructuring Strategies Types

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Types of Corporate Restructuring Strategies

Types of Corporate Restructuring Strategies

Various types of corporate restructuring strategies include

  • Merger
  • Demerger
  • Reverse Mergers
  • Disinvestment
  • Takeovers
  • Joint venture
  • Strategic alliance
  • Franchising
  • Slump Sale
  1. Merger:

    The merger is the combination of two or more companies which can be merged together either by way of amalgamation or absorption or by the formation of a new company. The combining of two or more companies is generally by offering the stockholders of one company securities to the acquiring company in exchange for the surrender of their stock.

Kinds of Merger

Mergers may be –

  • Horizontal Merger:

    It is a merger of two or more companies that compete in the same industry. It is a merger with a direct competitor and hence expands the firm’s operations in the same industry.

  • Vertical Merger:

    It is a kind of merger that takes place on the combination of 2 companies that are operating in the same industry but at diverse stages of production or distribution system. If any company takes over its supplier/producers of raw materials, then it may result in backward integration. On other hands, forward integration also results if a company agrees to take over the retailer or Customer Company.

  • Congeneric Merger:

    It is the type of merger, where two companies are in the same or related industries but do not offer the same products, but related products and may share similar distribution channels, providing synergies for the merger.

  • Conglomerate Merger:

    These mergers involve firms engaged in an unrelated type of activities i.e. the business of two companies are not related to each other horizontally or vertically. In a pure conglomerate, there aren’t any important common factors between companies in production, marketing, research and development, and technology. Conglomerate mergers are the merger of various types of businesses under 1 flagship company.

  1. Demerger:

    The demerger is a type of corporate restructuring wherein an entity’s business actions are separated into 1 or more mechanisms.

  2. Reverse Merger:

    The reverse merger is the opportunity for the unlisted companies to become a public listed company, without opting for Initial Public offer (IPO). In this process, the private company acquires majority shares of the public company with its own name.

  3. Disinvestment:

    It is the act of the organization or company or government for selling or liquidating an asset or subsidiary, this is known as “divestiture”.

  4. Takeover/Acquisition:

    Takeover occurs when an acquirer takes over the control of the target company. It is also known as an acquisition.

Types of Takeover:

It may be a friendly or hostile takeover.

  • Friendly takeover:

    In this type, one company takes over the management of the target company with the permission of the board.

  • Hostile takeover:

    In this type, one company takes over the management of the target company without its knowledge and against the wish of their management.

  1. Joint Venture (JV):

    A joint venture is an entity formed by two or more companies to undertake financial act together. The parties agree to contribute equity to form a new entity and share the revenues, expenses, and control of the company. It may be a Project based joint venture or functional based joint venture.

  • Project-based Joint venture:

    The joint venture entered into by the companies in order to achieve a specific task is known as project-based JV,

  • Functional based Joint venture:

    The joint venture entered into by the companies in order to achieve mutual benefit is known as functional based JV.

  1. Strategic Alliance:

    Any agreement between two or more parties to collaborate with each other, in order to achieve certain objectives while continuing to remain independent, organizations is called a strategic alliance.

  2. Franchising:

    Franchising is to be defined as an arrangement wherein 1 party (franchiser) allows another party (franchisee) the right to use its trade name along with definite business systems and procedure, to produce and market the goods or services along with certain specifications. The franchise generally pays a one-time franchise fee plus a % of sales revenue in terms of royalty and gains.

  3. Slump sale:

    Slump sale means the transfer of 1 or more undertaking because of the sale for lump sum consideration deprived of values being allocated to each and every individual assets and liabilities in such sales.

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