Corporate Restructuring is an act of reorganizing the legal, ownership, operational or other structures of a company for the purpose of making it more profitable, or better organized for its present or future needs.
The possible reasons are:
- Change in the strategy
- Positioning the company to be more competitive
- To move in an entirely new direction
- Lack of profits
- When the company or a division(s) is not profitable enough to cover the firm’s cost of capital and cause economic losses.
- Reverse synergy
- When the individual divisions is worth more than the combined unit.
- More value may be unlocked from a division.
- Cash flow requirement
- If the company is facing some difficulty in obtaining finance, selling an asset is a quick approach to raising money and reduce debt.
- Managerial effectiveness
- More competitive positioning of the firm
- Surviving adverse economic climate