Corporate restructuring refers to the process of making changes to one or more of the company’s business portfolios to obtain more profitable businesses. The fundamental reason for corporate restructuring is to further improve the long-term survival of enterprises by increasing efficiency and cost-effectiveness (Marimuthu, 2009).
The concept of restructuring can be understood as the process that the organization make an internal change for efficiently utilize and meet the needs of market. It may change the organization structure, technological elevation, financial restructuring and market position.
The process of corporate restructuring may be implemented due to many different factors, such as making the company more competitive, surviving in the current unfavorable economic environment, or allowing the company to move toward a new direction. Therefore, restructuring having pro and corns toward the business.
The purpose of corporate restructuring can be focus on asset utilization and profitable investment opportunities, reorganize or strip off companies or products that have poor profitability or losses and increase shareholder value such as it portfolio of businesses. The companies can also increase value through recapitalization, and it can innovate securities that help reduce capital costs (Base, 2015).
AT;T corporate is an American multinational telecommunications conglomerate and headquartered at Whitacre Tower in downtown Dallas, Texas, USA. It is the largest provider of fixed telephone services and the second-largest provider of mobile telephone service. The business provided by the AT;T in the 1980s was mainly the government- authorised telephone services in the Us and Canada. In 1982, the U.S. government pushed to break up AT;T, forcing it to split into what were called “Baby Bells.” These Baby Bells became regional telecommunications companies. AT;T maintained a monopoly on telephone service in the United States until anti-trust regulators split the company in 1982.
Table of Contents
Common Characteristic of Restructuring 4
Advantage of Corporate Restructuring 5
Increasing value of parts 5
Reduce costs 5
Reduces the financing risk 5
Disadvantage of Corporate Restructuring 7
Lose highly skilled workers 7
Decreased public image 7
Investor Reactions 7
Split up of AT;T 8
Common Characteristic of Restructuring
The common characteristic for restructuring should result in change such as change in corporate management, change of shareholders, change of business and change of control.
Changes in control can be achieved in many ways. Buying out of stocks for share is probably the most common ways. In addition, it is not uncommon for practice to bring together and transfer similar assets between different entities into one entity. Restructuring can be accomplished staff reduction by selling or closing the unprofitable portion to save the cost of operation. Secondly, restructuring help the company to improve the company’s balance sheet by selling unprofitable sector from its core business for strengthens the company.
Furthermore, restructuring help the company to reorganize the functions such as sales, marketing and distribution. It is also help the company to renegotiate the labour contracts to reduce the overhead cost from the company. For survive at the market, the company can be refinancing the corporate debt in company to reduce the interest payments through the restructuring. Restructuring also provide a major public relations campaign to reposition the company with consumer. Finally, restructuring also help in moving the operations such as manufacturing at the lower-cost locations to save the budget and cost.
Advantage of Corporate Restructuring
Companies can be restructuring through many of reason such as reduce the cost, merge with another company, spin off a subsidiary company, incorporate with new technology and improve the competitive advantage.
There are many benefits of restructuring to the company. One of the benefit will be financial such as restoring recessionary business, increasing the value of the company, preparing for sale or moving to the next generation.
Increasing value of parts
One of the main reasons for companies to use corporate restructuring is to sell their businesses separately. If a company tries to sell as a group, it may get a lower offer from investors. When a company is divided into different parts as known as split up, it is usually possible to provide a better offer for the individual parts. Based on this, the entire company can be increase the value and it also can increase the sales price of the business. For example, in 2018, Sime Darby will split into three corporations. The group will be split into three listed companies which are Sime Darby Plantation while manage the plantation business, Sime Darby Property will stay in property management and Sime Darby will comprise its trading business, motor and industrial, logistics and other businesses including healthcare, insurance, retail and investments (Gabriel Thoumi, 2017).
Restructuring a company help the business to reduce the business costs. For example, a company can merge with another similar company and use economies of scale to improve operational efficiency. It can decrease the number of employees and equipment to streamline business operations. Based on this way, companies can expand their coverage without increasing business expenses. If handled properly, companies may add significant value to the shareholders.
Reduces the financing risk
Restructure reduces the financing risk by diversify the sources of income, conceive innovative financial solutions and re-energize interest in unit sales. Through the revised strategy and financial plan, companies that are effectively reorganized will be more efficient, more organized and more focused on their core business. Corporate restructuring reduces financial losses and tensions between debt and equity holders to facilitate rapid resolution of critical situations (Sinti, 2014).
Disadvantage of Corporate Restructuring
Corporate restructuring is often associated with failed business models or major layoffs. Although restructuring may help the company move forward and improve its business, but in this process, it will have some impact on the company and employees.
Lose highly skilled workers
If companies shrink during the restructuring period, they may lose high-skilled workers. Reassigning the responsibilities of these workers to the remaining employees usually increases training costs. Workers left behind after downsizing often feel unsafe about their work, which can lead to low worker pressure and poor customer service. If a company’s restructuring involves changes in new technology or employee responsibilities, productivity can be affected when employees learn new roles (McMullen, 2014).
Decreased public image
When the company under restructuring, the public image may begin to change. Restructuring may make customers and the public generally question the future of the company. If the number of employees is reduced, there will be greater public monitoring risks, especially in times of economic hardship and many people are already unemployed.
Based on the funding of the company, investor responses can sometimes have a negative impact on restructuring. There will be have a problem to deal with when the investors are opposed to restructuring or worry they will lose their money. For public listed companies, a negative reaction to the restructuring may result in a fall in the stock price (Frost, 2018).
Split up of AT;T
In 1885, The American Telephone and Telegraph Corporation (AT;T) is the first company to offer long-distance telephone service in the United States. At the same time, Alexander Graham Bell and his financier created a company called American Bell Telephone. For a period after Bell’s patent expired, Bell tried to resist competition through price limits and aggressive mergers with competitors.
Over the years, AT&T has almost completely monopolized long-distance telephone services and controlling 22 local telephone service providers nationwide. In 1975, the Federal Communications Commission (FCC) introduced long-distance competition which also ending AT&T’s monopoly in the field. The 1974 antitrust lawsuit filed by the Department of Justice was finally settled in 1982, forcing AT;T to completely disarm her monopoly and divest of her local telephone service provider (Heakal, 20017).
In 1984, AT;T Corporate were split into seven independent Regional Bell Operating Companies as known as “Baby Bells”. They will be grouped into seven regions and each was controlled by a newly created, independent holding company. The breakup of the “Bell System” was affecting approximately one million workers and $150 billion in assets and it will be the largest corporate restructuring ever. It will have a profound impact on the nationwide telephone service. Not only the customers are feeling the impact of AT;T’s split up and deregulation of the telephone industry, about 3.2 million holders of “old” AT&T stocks must make key investment choices (Researcher, 2018). At the same time, as new competitive industries cut back on the strength of the labour market, employees of AT&T were hit by early retirement plans, layoffs, factory closures and transfers.
After Robert Allen became the CEO, he announced a divestiture plan in response to The Telecommunication Act of 1996, resulting AT&T to split into three operating units which are AT&T Service, AT&T Global Information systems, AT&T Network Equipment. Each unit is corresponding to one service only. The purpose of split into 3 business are focusing back on the core businesses, improving decision making and improving performance accountability.
AT&T had troubles finding its feet after the split and other than spinning off AT&T Wireless in 2001, languished while Baby Bells outperformed. The government unrestricted the telecommunications restrictions and the Baby Bells began to merge and acquire each other to increase the scope of services. In 2005, one of the Baby Bells bought out Ma Bell, renaming itself AT&T and bringing about at least a partial family reunion after 20 years.
Until in the year 2018, AT&T is the world’s largest telecommunications company and dominated by its mobile and fixed-line services. It has taken a big step toward the media sector by acquiring DirecTV in 2015 and trying to complete the acquisition of Time Warner if they can get regulatory approval.
Restructuring referring to restructure the organization to get more profit from operations or it is the best fit for the current situation. It became the need of organization to survive in the market. Many companies are losing money and may be in a state of insolvency when the economic is recession. Corporate restructuring enables the company to make positive contributions for the country’s future social and economic development.
The benefits of restructuring include gaining competitive advantage, such as helping companies position for growth, allowing new accounts to be added or expanded to other geographic areas (Financial, 2016). Although restructuring may help the company to move forward and improve its business, but in this process, it will have some influence on the firm.
Baby Bell is one of the most successful derivatives in history, because AT&T has paid for the infrastructure layout, their business has been established and cash is available from the first day. AT&T is no longer our past AT&T. This new version is becoming one of the most powerful communications and content companies in the world. If its merger with Time Warner is approved, it will set the tone for what its competitors need to do.