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Meaning
The process of reorganizing a company may be implemented due to a number of different factors, such as positioning the company to be more competitive, survive a currently adverse economic climate, or poise the corporation to move in an entirely new direction.
Characteristics
Changes in corporate management. Sale of underutilized assets, such as patents or brands. Outsourcing of operations such as payroll and technical support to a more efficient third party. Reorganization of functions such as sales, marketing and distribution. Refinancing of corporate debt to reduce interest payments. A major public relations campaign to reposition the company with consumers.
Expansions
Expansions include mergers, consolidations, acquisitions and various other activities which result in an enlargement of a firm or its scope of operations. A Merger involves a combination of two firms such that only one firm Survives. Mergers tend top occur when one firm is significantly larger than the other and the survivor is usually the larger of the two.
For example: In the 1999 merger of Glaxo Wellcome and SmithKline Beecham, both firms ceased to exist when they merged, and a new company, GlaxoSmithKline, was created.
Types of Merger
Acquisition
An acquisition is the purchase of one business or company by another company or other business entity.
The effort is to gain control may be a prelude to a subsequent merger to establish a parent subsidiary relationship, to break up the target firm and dispose of its assets or to take the target firm private by a small groups of investors. There are a number of strategies that can be employed in corporate acquisitions like friendly takeovers, hostile takeovers etc.
For Example : Tata Steel, Indias largest private producer of steel, purchased the Dutch firm Corus for $13.2 billion.
Contractions
Contraction, as the term implies, results in a smaller firm rather than a larger one. If we ignore the abandonment of assets, occasionally a logical course of action, corporate contraction occurs as the result of disposition of assets. The disposition of assets, sometimes called sell-offs, can take either of three board form: * Spin-offs * Divestitures * Carve outs