MOTIVE AND METHODS OF CORPORATE RESTRUCTURING THE MOST

MOTIVE AND METHODS OF CORPORATE RESTRUCTURING

THE MOST IMPORTANT MOTIVES 1. 2. 3. 4. 5. 6. 7. 8. STRENGTHENING INCENTIVES ACHIEVING A BETTER BUSINESS FIT SHARPENING MANAGEMENT FOCUS CREATING PURE PLAYS THAT HAVE UNIQUE INVESMENT APPEAL CURTAILING AN UPPRODUCTIVE REINVESMENT OF CASHFLOW ELIMINATING SUBSIDIES FOR UNDERPERFORMING BUSINESS ACHIEVING A HIGHER VALUED USE FOR ASSETS SAVING TAXES

RESTRUCTURING METHODS 1. 2. 3. 4. ASSET RESTRUCTURING are techniques that change the ownership of the assets that support a business. These methods include the use of partnerships or trust to save taxes, discharge surplus cashflow and split companies into more productive business unit. BUSINESS UNIT RESTRUCTURING can increase value in 3 ways : (a) by promoting growth through acquisitions, JV or offering a subsidiary’s shares to public (b) by separating business unit from the firm through a sale, spin-off, split-off or partial liquidation (c) by undertaking an internal leverage recapitalization CORPORATE RESTRUCTURING change the ownership structure of the parent company through : (1) issue of a new form of debt, preferred stock or common stock (2) share repurchase (3) leverage ESOP (4) Leverage cash out or LBO (5) complete sales, liquidation or split up of the firm CONVENTIONAL METHOD : INCREASING LEVERAGE

INCREASING LEVERAGE AS A RESULT OF : �LBO �SHARE REPURCHASES, �RECAPITALIZATION �DEBT-FINANCED ACQUISITION �PROLIFERATION OF JUNK BONDS

USE OF DEBT HAS POSITIVE FORCE OF ECONOMY �DEBT IS CHEAPER THAN EQUITY (TAX DEDUCTIBLE) �DEBT-FINANCED RECAPITALIZATION CAN STRENGTHEN INCENTIVES FOR INVESTOR TO MONIYOR THEIR INVESMENT �TO RETIRE DEBT, A COMPANY MAY BE FORCED TO FORGO UNPROFITABLE INVESMENT AND TO SELL UNDERPERFORMING OR UNRELATED ASSETS OR BUSINESS TO MORE PRODUCTIVE OWNERS

�TAX BENEFIT �CASH DISGORGEMENT � Repurchase Shares � Leveraged Share Repurchases � Partnership � Leverage acquisitions � Dividens �INCENTIVES � Investor Incentives � Incesntives for Management and Employee � No Guts-No Glory � Profit Sharing � ESOP � Leveraged Equity Purchase Plan