+ All Categories
Home > Documents > Demerger- 29th Nov 09 SAS

Demerger- 29th Nov 09 SAS

Date post: 03-Apr-2018
Category:
Upload: nivedita-misra
View: 231 times
Download: 0 times
Share this document with a friend
27
Case Stu d y on Case Stu d y on Demer g er Demer ger A ccountin g and A ccountin g and Company Law Company Law - CA. Su j al CA. Su j al Shah Shah aspects aspects
Transcript
Page 1: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 1/27

C a s e S t u d y o nC a s e S t u d y o nD e m e r g e rD e m e r g e r ––

A c c o u n t i n g a n dA c c o u n t i n g a n dC o m p a n y L a wC o m p a n y L a w

-- C A . S u j a lC A . S u j a l

S h a hS h a h

a s p e c t sa s p e c t s

Page 2: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 2/27

2 o f 3 4

D e m e r g e r

Page 3: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 3/27

D e m e r g e r -

I n t r o d u c t i o n

D e m e r g e r c o n t e m p l a t e s h i v i n g o f f 

a d i v i s i o n / u n i t / b u s i n e s s o f ac o m p a n y i n t o a n e w / e x i s t i n gc o m p a n y 

D e m e r g e r i n v o l v e s a v e r t i c a l s p l i t o f c o m p a n y , w h e r e b y b u s i n e s s i st r a n s f e r r e d o n a g o i n g c o n c e r nb a s i s t o a n e w / e x i s t i n g c o m p a n y 

T h i s d i v i s i o n m a y e i t h e r :

F o r m a n e w c o m p a n y a n d o p e r a t es e p a r a t e l y f r o m t h e o r i g i n a l o n e

o r C o n t .

Page 4: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 4/27

P R E

P O S T  S h a r e h o l d e r sS h a r e h o l d e r sS h a r e h o l d e r sS h a r e h o l d e r s

D e m e r g e r -

I n t r o d u c t i o n ( C o n t … )( C o n t … )

 A B A B

L t d L t d U n d e r t a k i n g AU n d e r t a k i n g A U n d e r t a k i n g BU n d e r t a k i n g B B L t d  B L t d  

 A B A B

L t d L t d 

U n d e r t aU n d e r t a

k i n g Ak i n g A

U n d e r t a k i n g BU n d e r t a k i n g B

Page 5: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 5/27

R e a s o n s f o r

D e m e r g e r U n l o c k i n g s h a r e h o l d e r v a l u e

S t r e a m l i n i n g b u s i n e s s s e g m e n t s

T o m a k e f i n a n c i a l a n d

f o r d e v e l o p i n g o t h e r m o r ep r o f i t a b l e o p p o r t u n i t i e s

S e l l i n g u n w a n t e d a n d s u r p l u sp a r t s i n t h e b u s i n e s s a s ar e s t r u c t u r i n g s t r a t e g y 

Page 6: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 6/27

 A ) E x a m p l e s o f D e m e r g e r i n t o a

n e w c o m p a n y :

D e m e r g e r o f N e w C h e m i c a lE n t i t R e s e a r c h U n i t N C E

D e m e r g e r –

E x a m p l e s

u n i t ) o f N i c h o l a s P i r a m a lI n d i a L t d i n t o N P I L R e s e a r c h& D e v e l o p m e n t L t d

D e m e r g e r o f C e m e n t B u s i n e s so f L a r s e n & T o u b r o L t d i n t oU l t r a T e c h C e m C o L t d

C o n t .

Page 7: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 7/27

B ) E x a m p l e s o f D e m e r g e r i n t o a n

e x i s t i n g c o m p a n y :

D e m e r g e r o f F a r m I n p u t sD i v i s i o n o f E . I . D P a r r I n d i a

D e m e r g e r –

E x a m p l e s ( C o n t … )( C o n t … )

L i m i t e d i n t o C o r o m a n d a lF e r t i l i s e r s L i m i t e d

D e m e r g e r o f C o n s u m e rP r o d u c t s D i v i s i o n o f C a d i l aH e a l t h c a r e L i m i t e d i n t oC a r n a t i o n N u t r a - A n a l o g u e

F o o d s L i m i t e d

Page 8: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 8/27

D e m e r g e r  –  C a p i t a l

S t r u c t u r e 1

D E M E R G E DC O M P A N Y

R E S U L TI N G

C O M PA N Y

P A R T I C U L A R  S B e f o r e A f t e r

S h a r e C a p i t a l 1 0 0 1 0 0 5 0

R e s e r v e s &  S u r p l u s 6 0 0 3 5 0 2 0 0

L o a n F u n d s 3 0 0 2 0 0 1 0 0

T o t a l L i a b i l i t i e s 1 , 0 0 0 6 5 0 3 5 0

F i x e d A s s e t s 6 0 0 4 0 0 2 0 0

N e t C u r r e n tA s s e t s 4 0 0 2 5 0 1 5 0 C o n t .

Page 9: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 9/27

D e m e r g e r  –  C a p i t a l

S t r u c t u r e 2 ( C o n t … )( C o n t … )

D E M E R G E DC O M P A N Y

R E S U L TI N G

C O M PA N Y

P A R T I C U L A R  S B e f o r e A f t e r

S h a r e C a p i t a l 1 0 0 5 0 5 0

R e s e r v e s &  S u r p l u s 6 0 0 4 0 0 2 0 0

L o a n F u n d s 3 0 0 2 0 0 1 0 0

T o t a l L i a b i l i t i e s 1 , 0 0 0 6 5 0 3 5 0

F i x e d A s s e t s 6 0 0 4 0 0 2 0 0

N e t C u r r e n tA s s e t s 4 0 0 2 5 0 1 5 0 C o n t .

Page 10: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 10/27

D e m e r g e r  –  C a p i t a l

S t r u c t u r e 3 ( C o n t … )( C o n t … )

D E M E R G E DC O M P A N Y

R E S U L TI N G

C O M PA N Y

P A R T I C U L A R  S B e f o r e A f t e r

S h a r e C a p i t a l 1 0 0 1 0 0 1 0 0

R e s e r v e s &  S u r p l u s 6 0 0 3 5 0 1 5 0

L o a n F u n d s 3 0 0 2 0 0 1 0 0

T o t a l L i a b i l i t i e s 1 , 0 0 0 6 5 0 3 5 0

F i x e d A s s e t s 6 0 0 4 0 0 2 0 0

N e t C u r r e n tA s s e t s 4 0 0 2 5 0 1 5 0

Page 11: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 11/27

Does breaking up

deliver value ? 

1 1 o f 3 4

Page 12: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 12/27

R I L D e m e r g e rReliance Demerger 

Date : January 18, 2006

(in Mn)

Name of Company

Market price No. of shares Market Cap Market price No. of shares Market Cap

RIL 912.90 1,39,35,08,041 12,72,133 708.46 1,39,35,08,041 9,87,245 

Pre- Demerger Post- Demerger 

. , , , , , , 

Reliance Energy Ventures Ltd 43.84 1,39,35,08,041 61,091 

Reliance Capital Ventures Ltd 22.61 1,39,35,08,041 31,507 

Reliance Natural Resources Limited 19.72 1,39,35,08,041 27,480 

Total 12,72,133 15,10,047 

% Increase/(decrease) 18.70%

Page 13: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 13/27

r o c e s s o

D e m e r g e r A g r e e m e n t o n

 A p p o i n t e d D a t e S c h e m e o f 

 A r r a n g e m e n t C o n v e n i n g a B o a r d

m e e t i n g

 

Va l u a t i o n a n d f a i r n e s so p i n i o n A p p r o v a l b y t h e

B o a r d o f D i r e c t o r s S t o c k E x c h a n g e

a p p r o v a l f o r l i s t e dC o m p a n i e s

P e t i t i o n t o t h e C o u r t M e e t i n g o f 

S h a r e h o l d e r s /C r e d i t o r s 

Page 14: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 14/27

Definition of Demerger – Section 2(19AA)

A l l t h e p r o p e r t y o f t h e ‘ u n d e r t a k i n g ’o f t h e d e m e r g e d c o m p a n y b e c o m e sp r o p e r t y o f t h e r e s u l t i n g c o m p a n y 

A l l t h e l i a b i l i t i e s r e l a t a b l e t o t h e

D e m e r g e r –C o n d i t i o n s

‘ u n d e r t a k i n g ’ b e c o m e l i a b i l i t y o f t h er e s u l t i n g c o m p a n y 

T h e p r o p e r t y a n d t h e l i a b i l i t i e s a r et r a n s f e r r e d a t B o o k Va l u e s

T h e r e s u l t i n g c o m p a n y i s s u e s s h a r e st o t h e s h a r e h o l d e r s o f d e m e r g e dc o m p a n y o n a p r o p o r t i o n a t e b a s i s

S h a r e h o l d e r s h o l d i n g m i n i m u m 75% o f t h e v a l u e o f s h a r e s b e c o m eC o n t .

Page 15: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 15/27

Definition of Demerger – Section 2(19AA) –Explanations

‘ U n d e r t a k i n g ’ s h a l l i n c l u d e a n y  p a r t o f t h e u n d e r t a k i n g o r a u n i to r a d i v i s i o n o f a n u n d e r t a k i n g o r

D e m e r g e r –C o n d i t i o n s ( C o n t … )( C o n t … )

a u s i n e s s a c t i v i t y t a e n a s a w h o l e

T h e l i a b i l i t i e s o f t h e u n d e r t a k i n g w i l l m e a n s p e c i f i c l i a b i l i t i e s o r

b o r r o w i n g s o f t h e u n d e r t a k i n g

T h e g e n e r a l p u r p o s e b o r r o w i n g o f t h e c o m p a n y w i l l b e t r a n s f e r r e d i n

p r o p o r t i o n o f t h e v a l u e o f a s s e t st r a n s f e r r e d a n d t h e t o t a l a s s e t s o f 

C o n t .

Page 16: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 16/27

Definition of Demerger – Section 2(19AA) – SomeIssues

I s i t p o s s i b l e t o t r a n s f e r s u r p l u sa s s e t s ?

I n t e r - d i v i s i o n b a l a n c e s -

D e m e r g e r –C o n d i t i o n s ( C o n t … )( C o n t … )

t r e a t m e n t ? B o r r o w i n g s a t h e a d o f f i c e l e v e l –

H o w t o s p l i t ?

I s i t p o s s i b l e t o t r a n s f e r e x t r al i a b i l i t i e s ?

W h e t h e r r e s u l t i n g c o m p a n y c a ni s s u e p r e f e r e n c e s h a r e s t o t h es h a r e h o l d e r s o f t h e d e m e r g e d

Page 17: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 17/27

Capital Gain Tax – Sec 47(vid)

N o t a t r a n s f e r - n o

l i a b i l i t y f o r c a p i t a l g a i n st a x i n t h e h a n d s o f  s h a r e h o l d e r s o f  T r a n s f e r e e C o .

 

D e m e r g e r – Ta xa s p e c t s

TAXBENEFITS

eeme v en ec 2 22 v 

N o t t r e a t e d a s D e e m e dd i v i d e n d . H e n c e n o t a xl i a b i l i t y f o r s h a r e h o l d e r s

Amortisation of expense – Sec 35DD

W h e r e a n a s s e s s e e , b e i n ga n I n d i a n c o m p a n y ,i n c u r s a n y e x p e n d i t u r e ,o n o r a f t e r t h e 1 s t d a y o f  

 A p r i l , 1999, f o r t h eu r o s e s o f  

C on t .

Page 18: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 18/27

Cost of Acquisition– Sec 49(2C) & 49(2D)

C o s t o f a cq u i s i t i o n o f s h a r e s o f  t h e t r a n s f e r e e / r e s u l t i n gc o m p a n y w i l l b e t h e a m o u n t w h i c h b e a r s t o t h e c o s t o f 

D e m e r g e r – Ta xa s p e c t s (cont..)(cont..)

a cq u i s i t i o n o s a r e s o t et r a n s f e r o r / d e m e r g e d c o m p a n y ,t h e s a m e p r o p o r t i o n a s t h e n e tb o o k v a l u e o f a s s e t s t r a n s f e r r e d

b e a r s t o t h e n e t w o r t h o f t h ed e m e r g e d c o m p a n y i m m e d i a t e l y b e f o r e d e m e r g e r

C o s t o f a cq u i s i t i o n o f s h a r e s o f  

t h e D e m e r g e d C o w i l l b e t h eo r i i n a l c o s t o f s h a r e s o f  

C o n t .

Page 19: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 19/27

Depreciation on the Assets beingtransferred

W DV i n t h e h a n d s o f  t h e d e m e r g e dc o m p a n y s h a l l b e t h e Ta x

A s p e

D e m e r g e r – Ta xa s p e c t s (cont..)(cont..)

a s s e t s b e f o r e d e m e r g e rl e s s WD V o f t h e a s s e t st r a n s f e r r e d t o t h e

t r a n s f e r e e c o m p a n y . D e p r e c i a t i o n t o

t r a n s f e r o r c o m p a n y  a n d t r a n s f e r e e

c o m p a n y i n t h e y e a r o f  

c t s

C o n t .

Page 20: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 20/27

C a r r y F o r w a r d & S e t - o f f L o s s e s –  S e c72A ( 4) & 72A ( 5)

B u s i n e s s L o s s e s a n d U n a b s o r b e dD e p r e c i a t i o n :

L o s s o r U n a b s o r b e d d e p r e c i a t i o n

D e m e r g e r – Ta xa s p e c t s (cont..)(cont..)

 w i l l b e t r a n s f e r r e d t o r e s u l t i n gc o m p a n y 

L o s s o r u n a b s o r b e d d e p r e c i a t i o n n o td i r e c t l y r e l a t a b l e t o t h e u n d e r t a k i n g

 w i l l b e a p p o r t i o n e d b e t w e e n t h ed e m e r g e d c o m p a n y a n d t h er e s u l t i n g c o m p a n y i n t h e p r o p o r t i o no f t h e v a l u e o f a s s e t s t r a n s f e r r e d a n d

t h e v a l u e o f a s s e t s r e m a i n i n g w i t h

Page 21: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 21/27

Case Study – Cadila Demerger

Zyd u s Ho s p i t a l s &

Me d i c a l R e s e a r c hPvt Lt d (ZHMR PL)

71 . 6

C a d i l a He a l t hc a r e

Lt d (C a d i l a )

Pha r m a Bu s i n e s s

C a r n a t i o n Nu t r a -

An a l o g u e Fo o d s

Lt d (C a r n a t i o n )

o n s u m e r Pr o d u c t

Bu s i n e s s

C o n s u m e r Pr o d u c t

Bu s i n e s s

6 1 . 56 %

Page 22: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 22/27

ZHMRPL

Step 1: D e m e r g e r o f C o n s u m e rP r o d u c t D i v i s i o n o f C a d i l a

i n t o C a r n a t i o n

Cadila Carnation

Pha r m a Bu s i n e s sC o n s u m e r Pr o d u c t

D i vi s i o n

C o n s u m e r Pr o d u c t

Bu s i n e s s

D e m e rg e r

4 e qu i t y s h a r e s o f C a r n a t i o n i s s u e d t o

t h e s h a r e h o l d e r s h o l d i n g 1 5 e qu i t ys h a r e s o f C a d i l a (i n c l u d i n g ZHMR PL )

Page 23: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 23/27

Carnation

ZHMRPL

P o s t D e m e r g e r :

Cadila

Pha r m a

Bu s i n e s s

C o n s u m e r

Pr o d u c t

Bu s i n e s s

Po s t d e m e r g e r C a r n a t i o n c e a s e t o be as u bs i d i a r y o f C a d i l a a n d be c o m e s

s u bs i d i a r y o f ZHMR PL

Page 24: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 24/27

Cadila ZHMRPLA ma l ga mat i o n

Step 2: A m a l g a m a t i o n o f ZH M R P Li n t o C a d i l a

Carnation

9 C r o r e s h a r e s o f C a d i l a h e l d by ZHMR PLc a n c e l l e d a n d n e w 1 0 . 0 9 C r o r e s h a r e s o f  

C a d i l a i s s u e d t o s h a r e h o l d e r s o f ZHMR PL(p r o m o t e r s )

Page 25: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 25/27

Step 3: R e - o r g a n i s a t i o n o f r e s e r v e s

o f C a d i l a

R s . 200 C r o r e s d e b i t e d t o S h a r eP r e m i u m A c c o u n t a n d c r e d i t e d t o

I n t e r n a t i o n a l B u s i n e s sD e v e l o p m e n t R e s e r v e A c c o u n t( I B D R )

I B D R t o b e u t i l i s e d f o r :

P r o f e s s i o n a l , l e g a l , f i n a n c i a l f e e s f o ra n y a c qu i s i t i o n b y C a d i l a

D e b t i s s u e , I n t e r e s t , i n t e g r a t i o ne x p e n s e s o r f o r e i g n e x c h a n g e

f l u c t u a t i o n r e l a t i n g t o s u c h d e b t R & D e x p e n s e s f o r p r o d u c t

r e g i s t r a t i o n a b r o a d

G o o d w i l l a r i s i n g o n a c c o u n t o f  a cq u i s i t i o n w h i c h r e q u i r e si m p a i r m e n t

 

Page 26: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 26/27

Shareholding Pattern of Cadila

Pre Post

% %

Promoter shareholding 72.02 74.25 

Others 27.98 25.75 

Shareholdin Pattern of Carnation

Particulars

 

Pre Post

% %

Promoter shareholding 61.56 70.53 

Others 38.44 29.48 

Particulars

Page 27: Demerger- 29th Nov 09 SAS

7/29/2019 Demerger- 29th Nov 09 SAS

http://slidepdf.com/reader/full/demerger-29th-nov-09-sas 27/27


Recommended