What is an Equity Restructuring?

An equity restructuring is a transaction between a corporation and its shareholders that alters the fair value of the shares associated with an option or similar reward. Examples of the equity instruments that may be altered in a restructuring are a rights offering, stock split, or stock dividend. Such a restructuring may be needed when shareholders feel that the terms of a stock issuance agreement are no longer fair to them, usually because the market price of the associated shares has declined so much that it is no longer realistic for them to exercise an option.

Advantages of an Equity Restructuring

An equity restructuring is especially useful when the recipients of stock options are so underwater on these arrangements that the options are essentially useless to them. In this case, a business must engage in a restructuring in order to provide value to the option holders. Otherwise, it may find that its employees will leave the company in search of more lucrative employment arrangements.