Other forms of restructuring

Divestiture (Spinoffs and split-offs)

Divestiture involves selling off a business unit of the company to another company. Companies use divestitures in order to focus on the core units of the company that earn the most revenues. A company can also divest as a way of solving financial issues resulting from non-core areas of the business.

Divestiture can take multiple forms, including as sell-offs, spin-offs, split-offs, split-ups, etc. The main forms of divestiture are spin-offs and split-offs. Spin-offs refer to a business division that is carved out of the parent company and operates as an independent entity. The acquirer allocates shares of the new subsidiary to its stockholders on a pro-rata basis.

On the other hand, a split-off is a subsidiary of the parent company that is split off from the parent company. Shareholders of the latter are allocated shares in the new subsidiary in exchange for shares in the parent company.

Strategic Alliance

It is a voluntary formal agreement between two companies to pool their resources to achieve a common set of objectives while remaining independent entities.

Recapitalization

A recapitalization transaction is a form of corporate reorganization where a company attempts to stabilize its capital structure by exchanging one form of financing for another. For example, the company can exchange the preferred stock or equity in the capital structure and replace it with debt.

A company can implement recapitalization when there is a threat of hostile takeover from its larger competitors or to prevent bankruptcy. Adding more debt to the capital structure would make the company less attractive to investors. During a financial crisis, governments pursue recapitalization in order to keep themselves solvent and protect the financial system from insolvency.

Corporate takeovers

Corporate takeovers occur when a company attempts to assume a controlling interest in another company by acquiring a majority stake in the company. Usually, takeovers involve a larger company acquiring a smaller entity, either through a voluntary or hostile takeover.

A voluntary takeover occurs when the acquirer and target entity mutually agree to the transaction, and the board of directors of the target company willingly approves the transaction. Voluntary corporate takeovers are initiated because the companies find value in each other, and the transaction will bring about operational efficiencies and improvements in revenues.

A hostile takeover is usually a forced acquisition, where an acquirer initiates a takeover attempt without the knowledge of the target company. The acquirer can implement a hostile takeover by purchasing a substantial stake in the target company when the markets open before the management realizes what is happening.

Financial Restructuring:

It is carried out internally with the consent of the various stakeholders by corporates which have accumulated substantial losses.  It is a suitable model for corporate firms accumulating losses over a number of years.  It is achieved by formulating appropriate restructuring scheme involving a number of legal formalities.  It implies significant change in the financial/capital structure of a firm, leading to the change in the payment of fixed financial charges and change in the pattern of ownership and control.

Amalgamation is an arrangement, whereby the assets and liabilities of two or more companies become vested in another company (amalgamated company) without giving proportional ownership to the shareholders of the acquired company. The amalgamating companies all lose their identity and emerge as an amalgamated company, though in certain transaction structures the amalgamated company may or may not be the original companies.