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Strategic Corporate Finance

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  1. Strategic Corporate Finance

  2. What is the basic objective of any firm? • Wealth maximization • That can be done by having a higher ROI and lower WACC, • For higher ROI company needs faster growth in business and lower WACC by having an ideal capital structure, • The growth can be either by Organic rout or by inorganic rout, • Organic rout is the expansion of existing product portfolio from within the organization ie launch of various car models by Maruti Suzuki or launch of Tata Sumo and Indica by tata moters. • Inorganic rout is the expansion of product portfolio from outside the organization ie acquisition of Jaguar Land Rover from Ford by Tata, • The organic rout adds a slow growth to the firm while inorganic rout adds a faster growth, • Inorganic rout is redefined as “Corporate Restructuring”, • The study of inorganic rout (Corporate Restructuring) is the subject matter of this course “Strategic Corporate Finance”

  3. Traditional Corporate Finance Vs Strategic Corporate Finance

  4. OBJECTIVES Strategic Corporate Finance Traditional Corporate Finance Maximization of Value of Shareholders

  5. Measures to Maximize Value Under TCF Balancing between Retention and Pay out ratio (Dividend Policy) Control over cost of capital (Reliance over traditional Sources of funds) Optimization of capital structure (Leverage) Management of Working Capital (Balance between Profitability and Liquidity)

  6. Measures to Maximize Value Under SCF Expansion of business globally Through Mergers, Acquisitions, Takeovers, JV, LBO, MBO Diversification Use of different sources of funds Like PE,FDI

  7. Strategic Corporate Finance • Corporate restructuring, • Mergers and Acquisitions; Motives and Synergies, • Takeover and defense tactics, • Legal aspects of corporate restructuring, • Valuation of target companies, • Fundraising, • MBO, MBI and LBO, • Company Disposals, • Due diligence, • Accounting and Tax aspect of Amalgamation and De-mergers

  8. Suggested Readings: • Beraly & Mayers, Priciples of Corporate Finance (TMH) • Aswath Damodaran, Corporate finance theory and practice (John willey) • Weaver and Weston, Strategic Corporate Finance (Cengage Learning) • Machiraju H R, Mergers, Acquisitions and Takeovers (New Age)

  9. Corporate Restructuring What is corporate Restructuring? • Any changes in the business capacity or the portfolio that is carried out by an inorganic route or, • Any change in capital structure that is not in the ordinary course of its business or, • Any change in ownership or control over its management or, • A combination of any two or all of above,

  10. Forms of Corporate Restructuring • Mergers, • Consolidation, • Acquisition, • Divestiture, • De-merger (spin off/split up/ split off), • Carve out, • Joint venture, • Reduction of capital, • Buy back of shares,

  11. Mergers and Acquisitions: Motives and Synergies……