Final Case: Corporate Restructuring

The case firm assigned to each team are reported to be in trouble, and needs corporate restructuring.

Corporate restructuring entails any fundamental change in a company's business or financial structure, designed to increase the company's value to shareholders or creditor.

Corporate restructuring is often divided into two parts: financial restructuring and operational restructuring.

Financial restructuring relates to improvements in the capital structure of the firm. An example of financial restructuring would be to add debt to lower the corporation's overall cost of capital. For otherwise viable firms under stress it may mean debt rescheduling or equity-for-debt swaps based on the strength of the firm. If the firm is in bankruptcy, this financial restructuring is laid out in the plan of reorganization.

The second meaning, operational restructuring, is the process of increasing the economic viability of the underlying business model. Examples include mergers, the sale of divisions or abandonment of product lines, or cost-cutting measures such as closing down unprofitable facilities. In most turnarounds and bankruptcy situations, both financial and operational restructuring must occur simultaneously to save the business.

Corporate financial restructuring involves restructuring the assets and liabilities of corporations, including their debt-to-equity structures, in line with their cash-flow needs to promote efficiency, support growth, and maximize the value to shareholders, creditors and other stakeholders.

These objectives make it sound like restructuring is done pro-actively, that it is initiated by management or the board of directors. While that is sometimes the case -- examples include share buybacks and leveraged recapitalizations -- more often the existing structure remains in place until a crisis emerges. Then the motives are defensive -- as in defenses against a hostile takeover -- or distress-induced, where creditors threaten to enforce their rights.

Financial restructuring may mean refinancing at every level of capital structure, including:

• Securing asset-based loans (accounts receivable, inventory, and equipment)
• Securing mezzanine and subordinated debt financing
• Securing institutional private placements of equity
• Achieving strategic partnering

Final Case: Corporate Restructuring - RITE AID

The case firm assigned to each team are reported to be in trouble, and needs corporate restructuring.

To the student team: The companies assigned to your team are reported to be in trouble, and You have been asked to develop a reorganization plan that will satisfy the creditors of the firm, and get a nod of approval from the court as well.

COMPANY ASSIGNED: RITE AID

The issues to be addressed are as follows:

(1) Should the restructuring be financial or operational? Or the firm needs both?

(2) What specific methods of financial or operational restructuring should be used?

(3) Will they produce fundamental improvements? State and discuss a minimum of three verifiable industry best practices including key performance indicators (KPIs) to validate the discussion.

(4) What are the risks involved in using these techniques?

The above questions should provide the foundation for your research, the analysis and the in-depth discussion of the topical issues as stated.

Please feel free to use credible outside sources in addition to the class text to complete the final case.