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28Corporate Restructuring

Corporate Restructuring

Table of Contents

2Introduction

2Defining corporate restructuring

4Need for restructuring in an organization

6Forms of restructure

6Mergers

7Forms of Merger

9Benefits of merger

11Takeover and acquisition

14Regulations for takeovers

15SEBI guidelines for takeovers

16Demerger

18Motivating factors for demergers

19Errors firms should avoid when restructuring

20Conclusion

21References

Corporate Restructuring

Introduction

In an organizational context, restructuring is the introduction of changes to the business strategies of an organization, which results in diversification, and closing parts of the business among other activities. This is often done with the objective of improving on the long-term productivity of the business operations of an organization (Hotchkiss and Mooradian 1997). Through restructuring companies have the ability of cutting out or merging departments with the objective of rearranging the business in ways that improve on its profitability and efficiency (Balogun and Johnson 2004). This is an indication that through restructuring businesses has the ability of consolidating their business operations and strengthening their position in ways that help in the realization of organizational objectives and the establishment of an effective competitive advantage in the business environment (Owolabi & Dada 2011). This essay will critically explain the three forms of restructure. In addition, the essay will explain the errors companies should avoid when restructuring.

Defining corporate restructuring

Restructuring involves changes in business mix, asset mix, alliances, ownership, and business mix as techniques of enhancing shareholder value. This is an indication that there are three ways through which rest curing can be realized (Hotchkiss 1995). Ownership restructuring for instance can be raised through mergers and acquisitions, joint ventures, strategic alliances and leverage buyouts. Business restructuring involves the decision by an organization to be involved in the rearrangement of its business divisions through diversification into new businesses, brand acquisition, divestment, and outsourcing (Balogun and Johnson 2004). Asset restructuring involves sale and leaseback of assets, receivable factoring, or securitization of debt. For an organization to make an effective decision on the restructuring approach to consider it is important to be engaged in a continuous assessment of its business portfolio, ownership and assets arrangement, and capital mix to ensure that it finds the most effective opportunities of maximizing shareholder value (Owolabi & Dada 2011).

In the process of engaging in significant changes of its business model, the financial structure or the management team with the objective of addressing organizational challenge’s and increasing shareholder value, the process of retracting ay require organizations to major lay-offs, through the objective of restructuring is often to minimize negative effects of the employees where possible (Stapleton 1985). The process of restructuring may also involve sale of a company or merger with another company to improve on efficiency levels and establish an effective competitive advantage. Restructuring from this perspective is therefore a business strategy used in ensuring long-term viability of organizations (Martin McConnell 1991). In addition, it is also possible for the creditors and shareholders of an organization to demand for restructuring in situations where they perceive the prevailing business strategies of an organization as insufficient in preventing losses on investments (van Knippenberg & van Leeuwen 2001). The nature of treat that facilitate restructuring in organizations are often varied but the most common catalysts include loss in market share, decline in the power of organizational brand and a reduction of the profit margins of an organization. Other restructuring enhancers include the inability of an organization to retain highly qualified professional and the introduction of major changes in the market, which have a direct effect on an organization’s business model (Owolabi & Dada 2011).

Need for restructuring in an organization

Restructuring in an organizational context is concerned with the arrangement of business activities in ways that facilitate the realization of certain predetermined objectives at the organization level (Barber and Lyon 1995). These include risk reduction, the development of core competencies, orderly redirection of organizational activities, deployment of financial resources from one business enterprise to finance profitable growth in another and the exploitation of interdependence among present or prospective businesses within the corporate portfolio (Bradley et al 1983). Whenever a firm considers restructuring of its activities, it is often important to deliberate on entire activities as a way of introducing a restructuring scheme at all levels (McBride 1996).

Ensuring an improvement on the competitive position of an organization is also one of the aims of restructuring. Restructuring from this perspective enables organizations to maximize their contributions to organizational objectives while at the same time exploiting strategic assets accumulated by the business in ways that facilitate the realization of organizational goals (Owolabi & Dada 2011). The realization that competition is a major driver of technological development and this occurs out of the necessity to meet challenges of competition among organizations. To ensure that an organization is more competitive in the market, organization often engage in the process of restructuring as a technique of driving competitive forces towards their advantage (Deng & Lev 1998).

In terms of scope, restructuring in an organizational context entails enhancing economy through cost reduction initiatives and improving on organizational efficiency as a way of realizing profitability. An organization that envisions growth in a competitive environment must restructure itself as a way that focuses on its competitive advantage (Dubofsky and Varadarajan 1987). The ability of an organization to survive and grow in a competitive environment is highly dependent on its ability to pool all the available resources and put them in optimum use. For instance, a larger company formed by mergers of smaller companies can realize the optimum use of available resources through economies of scale (Varadarajan & Ramanujam 1987). This is because if a firm is bigger and rich in term of resources, it has the privilege of enjoying a higher corporate status. This status allows the organization to leverage its operations to its advantage by being able to acquire large amounts of resources at relatively lower costs (Gaughan 1999). A reduction in the cost of capital translates into higher profits for such an organization while the availability of financial resources allows the organization to experience growth at all levels hence improving on its competitive advantage (Owolabi & Dada 2011).

Successful restructuring of organizations is highly dependent on the nature of business, the type of diversification needed, and the intended result with regard to profit maximization. This is however dependent on the ability of the organization to engage in effective pooling of resources, ensure optimum utilization of ideal resources and develop effective management structure that enhance competition within an organization (Freeman & Cameron 1993). The process of planning on restructuring require the management and the boards of an organization to engage in a planning process that ensure an effective assessment of the expected demands, existing competition, environmental impact, available resources and the expected business demands (Lewellen 2007). This will be done with the objective of ensuring the development of the most effective restructuring process that provides for optimum synergy of the organizations involved. The process of choosing the right restructuring strategy also requires an assessment of various aspects such as valuation and funding, legal, and procedural matters, taxation and aspects of stamp duty, competitor aspects, accounting issues, human and cultural synergy. Different players in organization such as top level or divisional managers have the ability of initiating restructuring of an organization (Lindenberg & Ross 2009). Furthermore, outside sponsors such as buyout funds can also initiate the process. Occasionally, restructuring is often considered as a defensive approach that arises in response to the need of controlling market threats on organizational control. Regardless of the initiators of the restructuring process, the parties involved are often driven by the objective of realizing organizational effectiveness and efficiency with regard to an improvement of cash flow within the organization, which is the ultimate technique of improving on its profitability (Lewellen 2007).

Forms of restructure

Mergers

In the business environment, mergers occur when two or more companies are combined to form one company. In mergers, it is possible for one or more companies to combine assets with an existing company or the merging process between the companies involved can result in the formation of a new company. Through this combination, mergers necessitate amalgamation of assets, liabilities, shareholder interests and the businesses of the organizations involved (Gaughan 1999). There is another mode of merger when an organization may buy another company and fail to give proportionate ownership to the shareholders of the company it acquires or without progressing with the business of the acquired company. In countries such as India, a merger is considered as an amalgamation (Weston, Chung and Siu 1998). In the amalgamation process, two or more companies (the amalgamating company or companies) merge with another company (the amalgamated company), or the merger of two or more companies to form a new company such that all the assets of the assets and liabilities of the amalgamating company or companies become assets and liabilities of the amalgamated company (Bebchuk & Chang1992). In amalgamations, the shareholders with not less than nine-tenth of the value of the shareholders in the amalgamating company or companies becomes shareholders of the amalgamated company (Krallinger 1997).

Mergers can be by absorption or by consolidation. A merger by absorption occurs when two or more companies combine with an existing company. Two companies except one lose their identity in the merger. The absorption of Tata Fertilizer Limited (TFL) by Tata Chemicals Limited (TCL) occurred when the latter an acquiring company retained its identity after merging with TFL, the acquired company that ceased to exists. The transfer of TFL assets, liabilities ad shares to TCL, characterized the process (Karpoff & Malatesta 1990). In this scheme of merger, TCL offered TFL shareholders 17 shares of the company for every 100 shares of TFL that hey held (Karpoff & Malatesta 1990). Merger through consolidation occurs when two or more companies combine to form a new company. In this merger scheme, there is legal dissolution of all companies to facilitate the creation of a new entity. In the consolidation process, the acquired companies transfer all their assets, shares, and liabilities to the new company for cash or in exchange of shares (Hotchkiss 1993). In 1986, four companies in India merged through consolidation to form a new company HCL limited. The merging companies included Hindustan Investment Limited, Indian Software Company Limited, Hindustan Computers Limited, and Indian Reprographics Limited (Karpoff & Malatesta 1990).

Forms of Merger

Horizontal merger is a combination of two or more companies in similar type of production area of business. For instance, horizontal merger can be realized when tow computer manufacturing companies combine to gain dominant market share. This approach to merger is often considered as the development of a business relationship between direct competitors (Mako 2012). This is considered as an effective move in the establishment of a competitive advantage because it expands the operation of the resulting company within the same industry. In addition, through horizontal merger the companies involved have the ability of achieving economies of scale while at the same time reducing the number of competitors in the market (Owolabi & Dada 2011).

Vertical merger involves a combination of two or more companies involved in different stages of distribution and production. For instance, a television manufacturing company and a television marketing company can merge their assets, liabilities, and shares as a strategy of boosting their position in the market (Jarrell et al 1988). This approach to merger can take the form of forward or backward merger. Backward vertical merger occurs when a company combines with the supplier of materials while forward vertical merger occurs when a company joins forces with its customer (Rouleau 2006). The vertical approach to merger provides the companies involved with a technique of ensuring total integration of companies that are striving to realize the ownership of all the phases of production and marketing. Vertical merger enhances the productivity levels of the resulting organization, enhances its ability to ensure effective marketing hence resulting in high-level productivity (Hong et al 2010).

Co-generic merger is an approach that facilitates the combination of two or more companies operating within the same industry but do not offer similar products or services (Sirower 1996). These organizations offer related products and the decision to engage in a merger is often to share the distribution camel hence providing some level of synergy. The benefits of co-generic merger lies in its ability to offer the resulting company with an opportunity of diversifying around a common case of strategic resources (Jensen & Ruback 2005).

Conglomerate merger involves the combination of companies involved in different areas of business activities and operations. This involves merging of different businesses such as manufacturing of fertilizers, insurance investment, advertising agencies, and the manufacture of cement products as in the case of Voltas Limited (Kaplan & Weisbach 1992). In conglomerates, there are no common factors that define the companies involved in different activities that define their operations. The main objective of this approach to merger is the optimum utilization of financial resources, enlarging their debt capacity and develops some synergy in the managerial functions of the businesses involved (Krallinger 1997). An additional benefit of this approach to merger is that it does result in any direct impact on acquisition of monopoly power hence provides companies with a means of diversification (Krallinger 1997).

Benefits of merger

Mergers facilitate the ability of organizations to attain market leadership. This is because the amalgamated entities have the ability of enhancing shareholder value by accessing a greater number of market resources. Through the additional markets share it becomes possible for firms to ensure control of its prices in an effective manner with a consequent increase in its profit levels (Krallinger 1997). Merger also enhances the bargain power of the company vis-a-vis buyers, suppliers, and labour. The merger between Reliance Industries Limited and Reliance Petroleum Limited was aimed at improving and strengthening of the existing market leadership for the resulting Reliance Company in all its operations. Through the merger, reliance improved on its position as a major player in the petroleum industry (Nauman & Mujtaba 2011).

Improvement of the economies of scale is also considered as a benefit of merger. This benefit arises when there is an increase in the volume of production and a reduction in the production cost per unit. Economies of scale are often associated with manufacturing operations such that the increase in the ratio of output and input is dependent on the volume of operations (Nauman & Mujtaba 2011). Mergers facilitate the expansion of production volume without any increase in the corresponding fixed cost. In the production process, the fixed cost is often distributed over a larger volume resulting in the decline of the unit cost of production. It is also possible to obtain economies of scale through optimum utilization of resources, effective planning, budgeting, reporting, and control of organizational operations (Whittington 2006). Combination of businesses to form a large organization can facilitate optimum use of management system and resources resulting in economies of scale (Mikkelson & Partch 1986). Mergers from this perspective provides organizations with a competitive advantage through the ability to ensure the reduction of prices and an increase in their market share or the realization of higher profits while maintaining their market price (Myers & Majluf 1984).

Mergers allow organizations to realize cost reduction because of operating economies. Through mergers, the resulting company may eradicate overlapping of functions and facilities through the implementation of an integrated planning and control system within the organization (Gertner & Picker 1992). This is based on the realization that the combined company has the ability of streamlining its operations in accordance with the prevailing market conditions. This not only enhances its effectiveness in the market but also facilitates its ability to realize organizational goals through effective management practices (KPMG 1999).

Mergers also have the ability of offering financial synergies and benefits to the combined company. This is often through the elimination of financial constraints, lowering cost of cost of financing, deployment of surplus cash, and enhanced debt capacity. A merger can ensure stability of cash flow in an organization hence enhancing the capacity of the resulting company to finance larger debts (Dann &DeAngelo 1983).

Diversification of portfolio and strategic integration are also considered as additional benefits of merger. Through diversification, the business improves on its dependence of varieties of segments through a combination of unrelated businesses. In an effort to ensure sustainability in the highly competitive market, the combined company ventures into related or unrelated business areas to seek growth opportunities (Clark & Ofek 1994). Through merger, strategic integration is realized when the amalgamated company has the ability of conducting its operations in a cost effective manner through optimal utilization of existing infrastructural and manufacturing assets (Brown et al 1994).

Mergers enable the realization of synergies. Synergies occur in situations where organizations realize that combining entities is more profitable that the sum of individual combing companies (Bradley, Desai & Kim 2009). Through combination of their operations, companies are able to create a unique integration for the merged entity hence enabling the realization of substantial savings on cost and significant enhancement of the earning potential of the amalgamated company (Mitchell and Lehn 1990).

Takeover and acquisition

This is s type of restructuring a company takes effective control over the management or the assets of another company without any combination of the companies. In an organizational context, a substantial acquisition is considered to have occurred in situations where the acquiring company takes control over a large portion of voting rights or shares of the target company (Bradley et al 1983). In an acquisition, it is possible for two or more companies to retain their independence as separate legal entities despite the introduction of changes in their management. In an acquisition, an acquirer may be in the form of another company or persons acting in concert with the objective of substantial acquisition of shares, voting rights or with the objective of gaining control over the target company (Bradley et al 1983).

Takeover is a form of acquisition, which occurs when an acquiring company gains control over a target firm. Takeover, just as in the case acquisition does not guarantee the acquiring firm full and legal control over the target firm (Gertner and Scharfstein 1991). Instead, the acquirer can have effective control over the target company through minority ownership of shares (Parrino & Harris 1999). The main objective of a takeover is to ensure that the company gains some level of supremacy in the market. Takeover and acquisition can be friendly or hostile. Friendly takeover occurs in situations where the acquirer takes over the management of the target company with permission from its board (Brown 1989). Friendly takeover is often characterized by an agreement between the management of the acquirer and the target company. These agreements are often actualized through negotiations. The takeover bids are often in done with the consent of majority of the shareholders of the target company. In hostile takeover, the acquiring company takeover control of the assist or the management of the target company without its knowledge and against the wishes of the management (Bhide 1989). Whenever the acquiring company fails to offer a proposal of acquisition to that target company but silently engages in the pursuit of its objectives to gain control over the management, a hostile takeover is often considered to be in progression (Bradley & Rosenzweig 1992).

Whether engaging in hostile or friendly takeover, the Substantial Acquisition of Shares takeover (SEBI) regulation of 2011 requires the acquiring company in takeover situation to make acquisition bids of certain level of holdings subject to the prevailing conditions in the market (Chintal et al 2011). The takeover bid must be introduced in the form of public announcements in newspapers. These requirements are often considered necessary in situations where the acquiring company desire to gain control of 25% of the voting rights or shares (Chintal et al 2011). Mandatory bid is also considered necessary in situations where the acquiring company desires control over an additional 5% of shares or voting rights of the target company in one financial year when the acquirer already holds not less than 25% of the voting rights or shares in the target company. Mandatory bid must also be made in situation where the acquiring company seeks to increase its control over the target company (Chintal et al 2011).

There are factors that which determine the vulnerability of companies for takeover bids from the acquirer’s perspective. These include low stock prices in relation to the potential earning power of assets or their replacement cost. A highly liquid balance sheet characterized by an unused debt capacity, valuable securities portfolio and a large amount of excess cash also form part of the factor that increase the vulnerability of a company for takeover bids from the perspective of the acquirer (Chintal et al 2011). In addition, the presence of subsidiaries and property that could be sold off without any significant effect on the cash flow of the organization coupled with a good cash flow in relation to the prevailing stock prices increase the vulnerability of an organization for takeover bids (Chintal et al 2011). Other factors such as relatively small stockings under the control of the existing management also define the level of vulnerability of a company for takeover bids. It is notable that a combination of these factors has the ability of making a company more attractive for takeovers. Furthermore, the target company’s assets may be used as collateral to facilitate the borrowing initiatives of an acquirer while the target company’ s cash flow from operations can be used in repayment of loans (Nauman & Mujtaba 2011).

Regulations for takeovers

Different counties, through the Companies Act, restrict individuals or companies from the acquisition of shares when they already own 25% of the total paid up capital. The Companies Act in a country such as India provides the approval of the Central government and the shareholders when a company as a legal entity or a group of individual purchases the shares of another company in excess of the accepted limit (Nauman & Mujtaba 2011). The approval of the central government is considered necessary in situations where the purchase of shares or voting rights is in excess of at least 10% of the subscribed capital of the target company. These precautionary measures by the government protect against takeover of publically listed companies (Laura 2012).

In order to diffuse the threat of hostile takeover, companies through SEBI have the powers of declining to register the transfer of shares. The decision to refuse the transfer of shares is considered operational when the refusing company informs the transferor and the transferee of this decision in a period of 60 days (Nauman & Mujtaba 2011). Refusal to register transfer of shares can be permitted if there is failure to comply with the legal requirements related to the transfer of shares or in situations where the transfer is considered to be in contravention of the law. Furthermore, a refusal to register transfer of shares can also be permitted if the transfer process is prohibited by a court order or if the transfer does not consider the interest of the company and that of the shareholders (Laura 2012).

In takeover bids, the companies involved have the responsbility of protecting shareholder interest without prejudice to genuine stakeholders. This is based on the understanding that it would be unfair if the company fails to offer the same high prices of all stakeholder of the prospective acquired company (Linn & McConnell 1983). Larger shareholders have the ability of acquiring majority of the benefits in takeover because they can access takeover dealmakers and brokers. Through the Companies Act, it is possible for minority shareholders to sell their shares if an offer has been made to company shareholders and the offer has been approved by 90% of the company shareholders (Laura 2012).

SEBI guidelines for takeovers

Any person or company that acquires at least 5% of voting rights or shares of the target company has the responsbility of disclosing his share acquisition at every stage of the target company within 2 days of acquisition or upon receiving insinuation of allocation of shares (Chintal et al 2011). Any person or entity that hold less than 75% but more than 15% of shares or voting right as of the target company and who engages in the purchase of sale of shares aggregating to 2% or more, has the responsbility of disclosing such purchase or sale (Chintal et al 2011). This disclosure must be made together with the aggregate of his share acquisition to the Stock Exchanges and the target company within 2 days.

An acquirer with the intention of acquiring shares which combined with his existing shareholding would entitle him to exercise at least 15% voting rights has the ability of acquiring such additional shares after making a public announcement. Such announcement is to acquire at least 20% of the voting rights of the target company from the shareholders through an open offer (Chintal et al 2011). An acquirer who holds at least 15% and at most 75% of voting rights or shares in a target company has the ability of acquiring such additional shares that would entitle him to exercise additional 5% of voting rights within the financial year. This is considered possible after making a public announcement to acquire at least 20% shares of the target company from the shareholders through an open offer (Chintal et al 2011).

Disclosure in takeovers is considered as an offer that provides detailed information on the terms of the offer, the identity of all the offerers, and details of the existing holdings of the offers in the offeree’s company. This target company has the responsbility of making this information available to all shareholders at the same time and in the same manner (Laura 2012).

The Companies Act also requires that in the process of a takeover, the acquiring company must provide an offer document. This document provides details of the financial information defining the offer. In addition, it also includes the intention to continue with the offeree’s business and the long-term commercial justification changes that c be made to the offer (Chintal et al 2011).

Demerger

This is a business restructuring strategy in which involves the breaking of a single business into components either to operate, to be sold, operate on their own, or be dissolved. Through demerger, it becomes possible for a large and established company such as conglomerate to be spilt into varieties of brands with the objective of preventing or inviting an acquisition (DeAngelo & Rice 1983). In addition, demergers also occur the company needs to raise capital through the sale of components that do not form an essential part of the core product line of a business. It is also possible for a company to be involved in demerger when there is need to facilitate the creation of a separate legal entity that handles different business operations (DeAngelo et al 1984).

Demergers are often defined by the splitting of the company into two or more legal entities that are independent. Demerger enables a wholly owned subsidiary to become an independent entity that allows shares to be distributed among the shareholders of the parent company based on pro-rata (Nauman & Mujtaba 2011). The process of facilitating a demerger is considered a non-cash dividend process by the parent company and tax free initiative on condition that no cost is incurred in the distribution of a substantial percentage of the of the shares to the shareholder (Lee & Teo 2005). Demergers are considered to be the reverse of mergers and acquisition since the seek to facilitate the de-conglomeration of companies in any industry where the mergers and acquisitions are considered to be less profitable with regards to improving organizational reputation and improving on the maximization of shareholder value (Gilson 1996). There are cases where companies are grouped together as conglomerates under the management of a single company. However, in an attempt to improve on individual profitability such companies may decide to restructure by demerging as a way of developing techniques that allows for the persuasion of individual corporate strategies through an independent management system (Nauman & Mujtaba 2011).

In terms of the impact of demergers on organizational growth and development, restructuring through demergers facilitates the creation of shareholder values since the resulting entities form the parent company focus on a specific line of business with the objective of realizing effectiveness and efficiency in their operations (Lee & Teo 2005). Demergers also it make to possible for companies to engage in the evaluation of changes in the size of the company and the effect of the performance of the organization compared to the situation prior to the demerger (Healy et al 2002). Through the established of separate and independent entities, a demerger provides organizations with the ability of evaluating the role of size in realization of business efficiency. This is because unlike mergers and acquisitions, demergers reduce the size of a company, shareholder capacity and the management (Owolabi & Dada 2011). This enhances efficiency since the management can streamline and integrate its activities into the actualization of organizational goals and objectives. Demerges also provides resulting organizations with the ability of assessing the impact of corporate focus in the realization of organizational goals and objectives with regard to effective management and profitability.

Motivating factors for demergers

The advancement of the capital market decreased the ability of conglomerates to add value with regard to organizational development. The process of demerging in an organizational context enables companies in unsuccessful mergers and acquisitions to structure and develop strategies of regaining dominance and improving on their efficiency as separate and independent business entities (Lee & Teo 2005).

The decision by an organization to engage in demergers is also based on the realization that when a conglomerate expands to become too big through mergers and acquisition, there is a possibility of experiencing diseconomies of scale. In such a situation, the coat of managing a larger organization outweighs the expected benefits making it profitable to create smaller and independent entities as a diversification strategy (Michel & Shaked 1984).

Demergers facilitate the process through which an organization can be able to assess its capacity in terms of effectiveness and profitability. Through a demerger, it becomes possible for the resulting entity asses s the capacity of its control mechanisms, employee skills, and incentive systems that can ensure effective delivery of its products or services. In addition, through demergers it becomes possible for the resulting entity to develop a technique of integrating and optimizing all parts of the firm with the objective of realizing organizational success (Owolabi & Dada 2011).

Technological and economic innovations in the contemporary society have made obsolete combinations of business enterprises, which were effective in the past. Demergers are considered as the most effective approach in improving the efficiency of these entities by avoiding cross-subsidization and the creation of large bargaining costs between the existing business units. Furthermore, it is through demergers that the management in an organization can ensure an increase in their level of corporate focus (Nauman & Mujtaba 2011).

Errors firms should avoid when restructuring

Failing to provide clarity on the long-term and short-term goals of the restructuring process. These goals must be defined in relation to customer expectations, maximization of shareholder value. In addition, the process of defining the long-term and short-term objectives must also define the ability of the restructuring process to meet organizational expectations.

Organizations must consider using restructuring as the first rather than last resort. This is because in some situations, companies restructure because they see other companies restructuring. This is considered as a cloning process where the management from different companies follows the actions and activities of other companies uncertainly. In this process, they fail to consider the alternative approaches of cost reduction, improvement of effectiveness and efficiency of a company (Owolabi & Dada 2011).

Organizations must always involve their employees in the restructuring process. This is based on the belief that employee are more likely to support the structures that they helped create. Failure to invite employees in the restructuring process generates the feeling of helplessness and unworthy with regard to lack of opportunities of participating in decision-making processes.

Failing to engage in open and honest communication processes has been considered as a major contributor to the atmosphere of uncertainty during the restructuring process. Honest and open communication is considered crucial for successful restructuring considering that the parties involved are having the ability to track and understand the process of engaging in the restructuring process.

Failing to evaluate results and learning from their mistakes in the restructuring process can be an indication that the company will repeat the same mistake in future restructuring activities. The process of assessing and evaluating the restructuring process will provide organizations with the ability of developing effective strategy of addressing organizational restructuring problems.

Conclusion

The process of restructuring businesses enables consolidation business operations and strengthening their position in ways that help in the realization of organizational objectives and the establishment of an effective competitive advantage in the business environment. Restructuring may also involve sale of a company or merger with another company to improve on efficiency levels and establish an effective competitive advantage. Restructuring from this perspective is therefore a business strategy used in ensuring long-term viability of organizations. Mergers, takeovers, and demergers facilitate the ability of organizations to attain market leadership. This is because the restructured entities have the ability of enhancing shareholder value by accessing a greater number of market resources. Through the additional markets share it becomes possible for firms to ensure control of its prices in an effective manner with a consequent increase in its profit levels.

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