1. Corporate Restructuring
Session 1
Abhimanyu
August 30, 2009

2. What Is Corporate Restructuring?
• Identify the best option for restructuring a company
faced with a particular problem, challenge, or
opportunity;
• Use financial valuation and credit analysis to measure the
potential value gains available through restructuring;
• Manage the complicated accounting, tax, legal, and
regulatory challenges that stand in the way of a
restructuring;
• Design an optimal negotiation strategy for dealing with
the firm's stakeholders to ensure the ultimate success of a
restructuring; and
• Execute decisively a restructuring plan.
August 30, 2009 Corporate Restructuring | Session 1 2

3. Essence Of Corporate Restructuring
The principal purpose of any restructuring
exercise is to achieve corporate objectives and
unlock value.
Three essential steps in corporate restructuring:
– Internal Restructuring
– External Restructuring.
– Making managers owners.
August 30, 2009 Corporate Restructuring | Session 1 3

4. Fulfilling Corporate Objectives
Why Restructure?

5. Corporate Objectives
• Generic Objective
– Maximize long-term shareholder value
• Tactical Objectives
– Improve Margin
– Satisfy customers
– Utilize capital effectively
– Raise funds economically
– Promote knowledge management
– Design effective compensation plan
– Divestment/ expansion/acquisition decisions
– Meet other social obligations
August 30, 2009 Corporate Restructuring | Session 1 5

6. Corporate Objectives (Contd.)
• Business-Unit Objectives
– Increase Revenue / Reduce Costs
– Monitor Product quality
– Better customer support service
– Better asset utilization
– Effective utilization of internal accruals
– External borrowing at lower cost
– Nurture intellectual capital
– Executive compensation plan tuned to Level 1 objective
– Proper invoicing
– Business ethics
August 30, 2009 Corporate Restructuring | Session 1 6

7. Corporate Objectives (Contd.)
• Grassroots Level Objectives
– Increase repeat orders
– Improve realization per visit
– Increase sales per employee
– Better capacity utilization.
– Reduce variable costs through better operational yield
– Variance analysis
– Respond to customer queries immediately
– Provide value added service
– Accounts receivable and payable terms and timing
– Check pollution emission level
– Facilitate site inspection by authorities
August 30, 2009 Corporate Restructuring | Session 1 7

8. Stakeholder Considerations
Why Restructure?

9. Ownership Theories
Shareholder Theory vs.
Stakeholder Theory
The US Experience
The Japanese Experience
August 30, 2009 Corporate Restructuring | Session 1 9

10. RIL: Vision in 1980-81
“...the Company a multi-product and
well diversified Company resulting in a
complete change in the face of the
Company and imparting a future
improvement to the net worth of
equity.”
August 30, 2009 Corporate Restructuring | Session 1 10

11. RIL: Vision in 1997-98
“In the light of anticipated robust growth in the
Indian economy, and our earnings growth
forecast, we will endeavour to double the value
of Reliance in the next five years. We plan to
achieve this goal through focused growth, capital
efficiency and a single minded emphasis on
shareholder value.”
“We have set ourselves the targets of achieving a
20% compounded growth in earnings per share
and a return of 20% on shareholders’ funds over
the next 5 years.”
August 30, 2009 Corporate Restructuring | Session 1 11

12. ONGC: Vision Statement
To be a world-class Oil and Gas
Company integrated in energy
business with dominant Indian
leadership and global presence.
August 30, 2009 Corporate Restructuring | Session 1 12

13. IOC: Vision Statement
A major diversified, transnational,
integrated energy company, with
national leadership and a strong
environment conscience, playing a
national role in oil security and public
distribution.
August 30, 2009 Corporate Restructuring | Session 1 13

14. BP-AMOCO: Vision
To create long-term shareholder value
from a distinctive set of investment
opportunities, which are:
– biased towards the upstream
– capable of producing returns which are
both secure and highly competitive over
the long-term
August 30, 2009 Corporate Restructuring | Session 1 14

15. BP-AMOCO: Mission
We currently expect to pursue that objective by:
– Maintaining proforma return on capital employed
(ROCE) at least broadly flat between 2003 – 2005
– Disciplined long-term investment growth
– Maintaining proforma gearing in the range of 25 -
35%
– Strategic management of costs:
• best-in-class operating costs (e.g. field or site specific costs)
• value/benefit driven revenue investment (e.g. advertising,
technology costs)
• fit-for-purpose and efficient levels of overhead cost
August 30, 2009 Corporate Restructuring | Session 1 15

16. Agency Costs
• Separation of ‘ownership’ and ‘control’
• Professional managers have enormous
powers
• How do you ensure that the power is not
misused?
• What about business ethics vis-à-vis
maximization of profits?
August 30, 2009 Corporate Restructuring | Session 1 16