Corporate Restructuring: An Overview

Importance of Corporate Restructuring

• Corporate restructuring serves as an important instrument for macroeconomic renewal.
• Corporate restructuring can be viewed through strategic, legal, taxation, cultural, psychological, and practical lenses.

Course Focus

• The course explores corporate restructuring decisions from a financial perspective, focusing on shareholders' interests.
• The course starts with Mergers & Acquisitions (M&A) and broadens to cover other restructuring decisions.

Corporate Restructuring Examples

• M&A example: Nissan and Honda discussed merger plans to possibly create the world's number three automaker on December 23, 2024.
• Divestment example: On May 17, 2024, GSK sold off its remaining stake in Haleon.
• Spin-off example: EY planned to spin off its audit business in a shake-up for the industry on May 27, 2022.
• Joint venture example: On July 29 2022, the EU Commission cleared the creation of a joint venture by Evonik and ACC.
• Strategic alliance example: On January 23, 2025, C3 AI and McKinsey & Company announced a strategic alliance to accelerate enterprise-scale AI transformations.
• Franchise example: On July 31, 2022, US burger chain Wahlburgers set to open more stores in Sydney as Mark Wahlberg's fast food franchise looked to make its mark in Australia.

M&A Controversies

• In favor: M&A is critical to healthy expansion of business firms, increases value and efficiency, and moves resources to optimal uses.
• Opposed: M&A does not provide improvements subsequent to the acquisition, redistributes wealth from employees/stakeholders to shareholders, and may involve speculative activity.

Lecture Outline

• Course introduction
• M&A terminology
• Strategic aspects of M&A

Course Knowledge Aims

• Confidently use M&A terminology (i.e. tender, merger arbitrage, synergy).
• Understand motives for corporate restructuring activities, including the possibility that M&A isn't always the best choice.
• Understand M&A wave determinants including impact from macroeconomic shocks.
• Predict shareholder wealth effects of restructuring.
• Understand determinants/shareholder wealth effects of M&A deal aspects like financing and takeover devices.

Course Skill Aims

• Apply corporate valuation techniques.
• Form/defend an opinion on M&A deals, including judgment criteria.
• Critically evaluate research related to restructuring.
• Assume the roles of M&A process participants to evaluate proposals.

Course Structure

• The course is comprised of 22 hours of lectures that cover theories, concepts, empirical evidence, and exercises.
• Course attendance is mandatory.
• The course syllabus outlines assigned reading materials for preparation.

Lecture Topics

• Lecture 1 provides overall introduction and foundation.
• Lectures 2-5 are an overview of theories and empirical findings regarding the timing, motives, and shareholder wealth effects of corporate M&A deals.
• Lectures 6-7 cover alternative forms of corporate restructuring, like divestitures, joint ventures, and alliances and their shareholder wealth effects.
• Lectures 8-9 focus on corporate valuation techniques.
• Lecture 10 covers merger arbitrage techniques and stock prices effects.
• Lecture 11 is a material revision session.
• Marie Dutordoir teaches lectures 1-5.
• Paul Simpson teaches lectures 6-10.
• A joint revision session is provided in lecture 11.

Course Materials

• Lecture sheets via Blackboard
• Personal lecture notes
• Core text: Takeovers, restructuring, and corporate governance, 4th edition by Weston, Mitchell, and Mulherin
• Case study Inbev takeover via Blackboard
• All listed materials are relevant for the exam.

Academic Articles

• Evaluate any empirical evidence critically.
• Consider the underlying assumptions, methodology, and findings.
• Evaluate practical implications.
• Focus on key insights/implications instead of only on details.

Exam Details

• The exam is on campus and lasts 2 hours, scheduled at the end of the second semester.
• The exam consists of 30 multiple-choice questions (70% of the grade) and 1 open question (30% of the grade), with possible sub-questions.
• Exam questions change each year, so previous exams can be used as a guideline

Formative Assessment

• Assessment is non-marked.
• Post to Blackboard before 9 am on Tuesday before each lecture.
• General feedback is provided in the next class.
• Open and/or multiple-choice questions will be used.

Questions

• Use the Blackboard Discussion Board to ask questions as they will probably be relevant for other students.
• Online Office Hours are Mondays from 9-10 am.
• Zoom meeting room ID is 7612764174.
• For an in-person appointment, email [email protected] to book a mutually convenient time.
• Arrive on time for in-person appointments at room 4.025 AMBS building for the 10-minute time slots.
• No additional information regarding the exam is given during appointments.

M&A Terminology

• Merger: Negotiated deals with mutuality in negotiations, and normally friendly.
• Tender Offer: An offer made directly to buy the firm's shareholders' shares for a given price, and it can be hostile without board approval.
• Acquisition: any deal.
• Corporate restructuring: Changes intended to improve firm operations, policies, and strategies.

Types of Mergers

Horizontal Mergers

• Horizontal mergers occur between firms in the same business activity.
• The rationale includes economies of scale/scope and synergies.
• Government regulation may limit mergers due to potential anticompetitive effects.

Vertical Mergers

• Vertical mergers combine firms at different stages of production/supply.
• The rationale includes improved information, lower transaction costs, and reduced lock-up problems.
• Vertical mergers can create loss in economic discipline.
• Traditional justifications for vertical mergers have fallen away as markets globalize.
• Simplicity, efficiency, customer relationships, speed, and geopolitical uncertainty are reasons for the rebound of vertical integration.
• Antitrust authorities are increasingly wary of competition concerns with vertical mergers.

Conglomerate Mergers

• Conglomerate mergers occur between firms in unrelated business activities.
• A rationale is diversification with potentially successful examples being Apple and Amazon.
• "Good managers can manage anything" is a rationale.

Strategic Aspects of M&A

Nature of Strategy

• Strategy defines the long-term plans, policies, and culture of an organization.
• Strategic planning is dynamic, with inputs required from all parts of the organization.
• Acquisition/restructuring policies are best as part of the company's strategic plans/processes.
• The ultimate responsibility is with the top executive group.

Classic Strategies

• Low-cost leadership creates a sustainable cost advantage over competitors.
• Differentiation distinguishes the firm through innovation and product quality.
• Focus/specialization involves finding and dominating a market niche.

Strategic Planning Key Steps

• Strategic panning includes developing a mission or vision.
• It also involves a set of strategic objectives and sets of tactics.

Strategy Setting

• Setting strategy begins with defining a mission or vision. This is a statement of the main objectives of the organization.
• The mission/vision then needs to be translated into strategic objectives: very generic goals.
• Strategy is a plan for fulfilling the mission and achieving objectives.
• To be strategic is to look ahead.

Tactics

• Tactics are specific actions to implement a strategy.
• These can include expanding the firm via organic/inorganic growth, divesting firm segments, or cooperating with other firms through licensing agreements.

Strategy Planning Analytical Tools

• SWOT analysis: Strengths, weaknesses, opportunities, threats.
• BCG's experience curve analysis: Cost per unit declines exponentially as cumulative production increases.
• BCG's product life cycle concept: Development, growth, maturity, decline.
• BCG's growth-share matrix.
• Porter's five-factor model: Focuses on barriers to entry, customer/supplier power, the threat of substitutes, and rivalry conduct.

Assignment Questions

• Honda and Nissan announced plans to merge December 23, 2024.
  • What type of deal is this: horizontal, vertical, or conglomerate?
  • What was the justification for this deal? Do you think this justification is valid?
  • How do you think the companies' shareholders reacted to this deal?
  • Apply Porter's five-factor model to the car industry.
• Submit by next Tuesday, 9 am via Blackboard
• Answers are not marked, but help understand the material