Date post: | 14-Apr-2017 |
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BUSINESS RE-STRUCTURING…
- CA HARESH SHAH
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INTERNAL RE-STRUCTURING
Means:
Examine the present structure of the group
businesses
Legal- Company, WoS, LLP
Financial:- leveraging, flexibility of
financing, expansion, Promotor group
shareholding and Family Succession
Tax optimization including transfer
pricing regulations
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INTERNAL RE-STRUCTURING
Future plan:- IPO, JV, alliance and exit
Commercial:- Synergies, focused
management , risk and return profile,
cost optimization and unlocking value
Return to shareholders:-Dividend and
Buy Back
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OPTIONS AVAILABLE…
Re-Structuring
Merger
Demerger
Slump Sale
Itemised Sale
Apart from above, there are various other options available in restructuring.
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Case Study:- Godrej Group
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ABOUT GODREJ GROUP…Recently, Godrej Group consolidated Godrej Industries Limited’s (GIL) interest in Godrej Vikhroli Properties LLP (GVP LLP) (a joint venture entity of Godrej Properties Limited and Godrej Industries Limited) with the Godrej Properties Limited (GPL).
Godrej Vikhroli Properties LLP is incorporated in 2011, a limited liability partnership between GPL and GIL to develop an integrated township project known as ‘The Trees’ consisting of residential and commercial developments, planned over approximately 34 acres of land in Vikhroli to be build in 3 phases. GPL has 60% share in the LLP while GIL’s share is 40%.
GIL GPLIndia's leading manufacturer of oleo chemicals and makes more than a hundred chemicals for use in over two dozen industries.
Real estate development arm of the Godrej Group.
It is a subsidiary of Godrej Industries Limited.
EXISTING STRUCTURE…
Why Restructuring:-
Godrej Industries Limited wants to exit from the project “The Trees”
GIL
GVP LLP
GPL
40%
60%
56.41%
THE RE-STRUCTURING…
GVREL*
*:- New company incorporated..
100%
SPVThe restructuring steps as follows:
Step 1:- GIL to formed a Special Purpose Vehicle (SPV) GIL Vikhroli Real Estate Limited (GVREL) as a wholly owned subsidiary of GIL.
Step 2:- GVREL will enter as partner in GVP-LLP with 40% share and simultaneously GIL will retire itself from GVL-LLP.
Step 3:- GVREL will get merged with GPL.
GIL
GPL
56.41%
GVP LLP
40%
60%
Step I
Step II
Step III
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WHY SUCH STRUCTURE…GIL formed Special Purpose Vehicle (SPV) – GIL Vikhroli Real Estate Limited and then this to be merged in GPL. There can be 2 main reasons for doing so:-
To make Transaction Tax neutral for GIL as shareholder of GPL
Cash neutral for GPL
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GAIN TO GODREJ GROUP…
Exit for GIL from non-core business.
Remaining two phases’ profit will be booked by GPL alone.
Promoters holding in GPL will increase to 76.86% from current level of 74.91%.
GIL/Promoters are likely to get about INR 145 crore from selling their 1.86% stake tax free .
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Case Study:- Adani Group
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ABOUT ADANI GROUP…Diversified industrial conglomerate Adani Group restructured its business in which the public listed power generation and ports firm spliced out of the flagship company Adani Enterprises Ltd (AEL) while the privately held power transmission unit be listed as a separate firm.
AEL decides to restructure four major businesses
PORT BUSINESS: Operated through Adani Ports and Special Economic Zone Limited (APSEZL), in which AEL was holding 74.99% stake.
POWER BUSINESS: Operated through Adani Power Limited (APL), in which AEL was holding 68.99% stake.
TRANSMISSION BUSINESS: Adani Transmission Limited (ATL), WoS, through which the group is operating its Transmission business.
COAL BUSINESS: Adani Mining Private Limited (AMPL), a wholly owned subsidiary of AEL to undertake activities relating to development and operation of domestic coal mine.
ADANI ENTERPRISES
LIMITED
Mining & Trading
Adani Mining Private Limited
Adani Global Limited
Adani Global FZE, Dubai
Adani Global Pte, Singapore
Oil & Gas
Adani Gas Limited
Adani Welspun Exploration
Agro Product
Adani Agrifresh Limited
Adani Wilmar Limited
Port
Adani Ports Special Economic
Zone Limited
Power
Adani Power Limited
Adani Power Maharashtra
Limited
Adani Transmission India
Limited
Adani Transmission
Limited
100% 100% 100%
50%
74.99% 68.99%
100%
90.91%
65%100%
100%
100%
9.09%
100%
PRE RE-STRUCTURING STRUCTURE OF ADANI GROUP…
Before Re-Structuring, equity shares of AEL, APSEZL and APL were listed on BSE & NSE.
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THE RE-STRUCTURING…Transaction IDemerger of the Port Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities pertaining to Belekeri Port and investment of AEL in APSEZL into APSEZL.
Transaction IIDemerger of the Power Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities pertaining to the 40MW Bitta Solar Project and investment of AEL in APL into APL.
Transaction IIIDemerger of the Transmission Undertaking of AEL comprising the undertaking, businesses, activities, operations, assets and liabilities relating to the Mundra- Zedra transmission line and investment of AEL in ATL into ATL. ATL to be listed on BSE Limited and National Stock Exchange of India Limited pursuant to the scheme.
Transaction IVMerger of AMPL into AEL.
POST RE-STRUCTURING STRUCTURE OF ADANI GROUP…
Adani Ports and Special Economic Zone Limited
(APSEZL)
Adani Enterprises Limited (AEL)
Mining Trading
Adani Global Limited
Adani Global FZE, Dubai
Adani Global Pte,
Singapore
Agro Product
Adani Agrifresh Limited
Adani Wilmar Limited
Gas and Oil
Adani Gas Limited
Adani Welspun Limited
Adani Power Limited (APL)
Adani Transmission Limited (ATL)
100%
100% 100%
100%
50%
100%
65%
AEL, APSEZL, APL and ATL have their equity shares listed on BSE and NSE. AEL now is engaged in Mining, Trading, Agro Product and Gas & Oil businesses. Adani Global Limited, Adani Agrifresh
Limited and Adani Gas Limited are subsidiaries of AEL while Adani Global FZE & Adani Global pte are step down subsidiaries of AEL.
Adani Wilmar Limited & Adani Welspun Limited are the Joint Ventures of AEL.
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WHY RE-STRUCTURING…Each of the varied businesses are distinct in terms of
Potential for growth and profitability
Nature of risk and competition
Different level of capital
Direct ownership of operational businesses
Increase the valuations
Shareholders will be having the flexibility to remain invested in one or more of the businesses
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VALUE CREATION…Let us try to calculate gain to the shareholder
Particulars Amount
Share price of AEL before demerger announcement i.e on 28.01.2015
557
Today’s Price i.e. on 19.08.2015
AEL 86
APSEZL (368* 1.4123) 520
APL (27*1.8596) 50
ATL 40
Adjusted price of AEL 696
Gain in prices 139(24.95%)
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Case Study:- Aditya Birla Nuvo
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ABOUT ADITYA BIRLA GROUP…Aditya Birla group’s conglomerate Aditya Birla Nuvo Limited (ABNL) announced consolidation of its branded apparels businesses under its listed subsidiary - Pantaloons Fashion & Retail Limited (PFRL). Acquired in 2012 from Future group
Presently, the apparels retail businesses of the Aditya Birla group are housed under three separate entities i.e. ABNL, Madura Garments Lifestyle Retail Company Limited (MGLRCL) and PFRL. ABNL has two division Madura Fashion & Lifestyle and Jaya shree textile.
PFRL is among the top 3 large format fashion retailers and the largest branded womenswear retailer.
MGLRCL, WoS of ABNL, is the largest premium branded apparel player in India. Its premium brands – Louis Philippe, Van Heusen, Allen Solly and its popular brand - Peter England, are leaders in their respective categories.
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PRE RE-STRUCTURING STRUCTURE…
ABNL
Financial Services
Life Insurance
Asset Management
NBFC
Broking
Telecom Fashion & Lifestyle
MGLRCL
PFRL
Manufacturing
Agri
Rayon
Insulators
Branded Apparels
100%
72.62%
Aditya Birla
GroupPublic
58.30% 41.70%
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THE TRANSACTION…a
ABNL
Madura Fashion& Lifestyle
Jaya Shree
MGLRCL
Madura Lifestyle
Textile
PFRL
Demerger of two divisions
100%
72.62%
Divisions Divisions
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THE TRANSACTION…Transaction Steps:-
Step I:- Demerger of Madura Fashion (division of
ABNL) into PFRL.
Step II:- Demerger of Madura Lifestyle (division of
MGLRCL) into PFRL.
As result of re-structuring, PFRL will issue shares to
the shareholders of ABNL. The existing base of 92.8mn
Shares of PFRL will expand to more than 770 mn.
Post Re-structuring ABNL stake will come down to 9.06%
from 72.62% resulting into losing of control over PFRL.
Aditya Birla GroupABNL Public
Pantaloons/ABFRL=
Madura F&LPantaloons
Madura Lifestyle
9.06% 51.10% 39.84%
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WHY RE-STRUCTURING…
Consolidation of lifestyle business under one roof
Synergies of operation and cost savings in terms of size
Entire spectrum of fashion
Madura will get exposure to women wear
Promoter group holding in PFRL.
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VALUE CREATION…Let us try to calculate gain to the shareholder
Particulars Amount
Share price of Aditya Birla Nuvo before demerger announcement i.e on 30.04.2015
1570
Share price of Pantaloons before demerger announcement i.e on 30.04.2015
114
Today’s Price
Aditya Birla Nuvo (52 week high) 2335*
Pantaloons 222
THANK YOU…
2015 © hu consultancy. All rights reserved.
Disclaimer:- All the respective companies logo have been taken from google. Share prices are taken from bse.
About the Author : He is a Chartered Accountant with over three decades of experience in Tax Consultancy and Audit Advisory. He has over 2 decades of experience in Corporate Restructuring with expertise in Business Strategy and Corporate Taxation. He is also an alumni of Harvard Business School.
To Know more visit www.hareshshah.com
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