Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07
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Unlocking The Value Through Corporate Restructuring Gvalior Seminar Corp Res 19.05.07

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This presentation enumerates the practical aspects of merger, demerger and reduction of capital and the strategies involved therein. It also highlights certain key issues involved in corporate ...

This presentation enumerates the practical aspects of merger, demerger and reduction of capital and the strategies involved therein. It also highlights certain key issues involved in corporate restructuring.

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Unlocking The Value Through Corporate Restructuring Gvalior Seminar Corp Res 19.05.07 Presentation Transcript

  • 1. Unlocking The Value Through Corporate Restructuring Pavan Kumar Vijay 19.05.2007
  • 2. GOVERNING PROVISION SECTION 391-394 of Companies Act, 1956 Most liberal sections in the entire Companies Act, 1956. By way of SCHEME you can propose & achieve whatever you want
  • 3. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER
  • 4. RESTRUCTURING BIFR High Court Approving Authorities
  • 5. MERGER “ Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition ”. MERGER REVERSE MERGER “ As a commercial term, it means when a Healthy Company (in terms of size, capital or listing status)is merging in a Weak Company (in terms of size, or unlisted)”. SECTION 391-394 of Companies Act, 1956
  • 6. DEMERGER “ Division of a Company with two or more identifiable business units into two or more separate companies ” SECTION – 2(19AA) of Income Tax Act, 1961.
  • 7. “ Extinguishing or Reducing the paid-up capital, Securities Premium Account or liability of members with respect to their unpaid calls” -AN EFFECTIVE WAY OF INTERNAL RESTRUCTURING REDUCTION OF CAPITAL SECTION – 100 – 105 of Companies Act, 1956 SECTION 100 to 105 of Companies Act, 1956
  • 8. A FEW VARIETY OF MERGER
    • Unlisted with Listed
    • Listed with Unlisted
    • Merger of Subsidiary with Holding Company
    • Merger with Group Company
    • Healthy Company with Weak Company
    • Merger through BIFR
  • 9. BASIC STEPS IN MERGER/DEMERGER
    • Preparation of Scheme
    • Valuation of Companies to determine the Swap Ratio
    • Application in High Court for Calling of Meeting
    • Approval of Scheme by Shareholders & Creditors
    • Approval by RD & OL
    • Approval by High Court
    • Implementation of Scheme
  • 10. ADDITIONAL REQUIREMENTS FOR LISTED COMPANIES Compliance of Listing Agreement Clause 40A: Non-promoters holding for Continuous Listing Lock-in requirements Clause 24(f): Prior Approval Clause 24(a): In principle approval
  • 11. Stock Exchange’s Norms Presently, Stock Exchange(s) are laying various other norms before giving approval to the Companies for ‘ Merger ’, ‘ Demerger ’ ‘ Reduction of Capital ’
  • 12. Compliance of Other Laws “ The Stock Exchange(s) alongside considers the compliance of Securities laws, regulations, rules etc. applicable on the Company and Companies Act also”
  • 13. MERGER THROUGH BIFR AN EFFECTIVE WAY TO REVIVE YOUR SICK COMPANY
  • 14. MERGER THROUGH BIFR ….. benefits
    • EXEMPTION FROM TAKEOVER CODE
    • (Regulation 3(1)(j) of SAST Regulations, 1997)
    • TAX BREAKS
    • DEFERMENT OF VARIOUS STATUTORY LIABILITIES
    • ONE TIME SETTLEMENTS WITH BANKS & FI
    • CARRY FORWARD OF LOSSES
  • 15. DEMERGER Reliance Natural Resources Ltd Reliance Capital Ventures Ltd
  • 16.
    • Listed Company demerging into two companies (both could be listed).
    • Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity.
    • Distribution of shareholding in a Wholly owned Subsidiary among shareholders
    TYPES OF DEMERGER
  • 17.
    • At least 10 per cent of securities issued by a company was offered to the public through advertisement & following conditions were fulfilled:
      • ( a ) minimum 20 lakh securities was offered to the public;
      • ( b ) the size of the offer to the public ≤ Rs. 100 crores ; and
      • ( c ) the issue was made only through book building with allocation of 60 % of the issue size to QIBs
      • Or
      • 2. It shall offer at least 25 % of each class to the public through Advertisement & Shares applied in pursuance of such offer were allotted
    CONDITION FOR LISTING (Rule 19 (2) (b) of SCR Rules)
  • 18.
    • EXEMPTION FROM CONDITION OF RULE 19 (2) (b)
      • Listed Company merging with Unlisted Company.
      • Demerger of a Listed Company, the Resultant Company to get the benefit of listing.
    LISTING UNDER CL. 8.3.5.1 OF SEBI (DIP) GUIDELINES
  • 19.
    • CONDITIONS FOR AVAILING EXEMPTION
    • Shares have been allotted by the unlisted company (transferee-company) to the holders of securities of a listed company (transferor-company) pursuant to a scheme of reconstruction or amalgamation under the provision of the Companies Act, 1956, and such scheme has been sanctioned by the High Court/s of Judicature.
    • At least 25% of the paid-up share capital , post scheme, of the unlisted transferee-company seeking listing comprises shares allotted to the public holders of shares in the listed transferor-Company.
    Listing under Cl. 8.3.5.1 of DIP Guidelines Cont….
  • 20. Listing under Cl. 8.3.5.1 of DIP Guidelines Cont….
    • The unlisted company has not issued/reissued any shares, not covered under the scheme.
    • There are no outstanding warrants /instruments/ agreements which gives to any person to take the shares in the unlisted transferee company at any future date.
    • That the shares of the transferee-company issued in lieu of the locked-in-shares of the transferor-company are subjected to the lock-in for the remaining period.
  • 21.
    • Promoters’ shares shall be locked-in to the extent of 20% of the post merger paid-up capital of the unlisted company, for a period of 3 years from the date of listing of the shares of the unlisted company.
    • The balance of the entire pre-merger capital of the unlisted company shall also be locked-in for a period of 3 years from the date of listing of the shares of the unlisted company.
    Listing under Cl. 8.3.5.1 of DIP Guidelines Cont….
  • 22. Case Studies
  • 23. Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGC) -Demerger Scheme- FACTS
    • MGC was engaged in two separate business:
    • Real Estate Development
    • Manufacturing of various kind of fibers & fabrics
    • ii. The two businesses were quit distinct - it was desired to segregate the two.
  • 24. Salient Features of the Scheme
    • Before merger MGC transferred its complete Textiles Business to MTL in lieu
    • of which MTL allotted shares to a SPV, MGC Shareholders Trust. MGC changed
    • its name as Morarjee Realty Ltd. (MRL). Again, the name changed to Peninsula Land Ltd. (PLL)
    • .   The investment by MGC (Now MRL) in MTL was distributed among the
    • shareholders of MGC in the ratio of 10:21.
    • .      The equity shares in MTL held by MGC Shareholders Trust was also
    • distributed among the shareholders in the ratio of 1:25, free of cost
    • .      The Preference shares held by MGC Shareholders Trust were also offered to
    • the shareholders at a discounted price.
    • .      The new shares received by the shareholders of MGC (MRL) got listed on
    • BSE & NSE under the provisions of Clause 8.5.3.1 of SEBI (DIP)Guidelines in
    • exemption of Rule 19 (2) (b) of SCRR.
    • Through the same scheme MTL reduced its share capital by 80% to wipe-out
    • the past losses and hence cleaned up its balance sheet.
  • 25. Benefits achieved……..
    • Two unrelated businesses were separated to make it possible to determine the Industry of the Company. It is desirable to attract Industry specific investors.
    • The shareholders received shares to two listed entities with separate business profile, thus, providing better valuation & liquidity.
    • There was no tax implication in the hands of the companies involved or the shareholders.
    • It also helped MTL to wipe out past losses, making the balance sheet clean and attractive. No loss of carry forward of past losses.
  • 26. Financial Benefits to Shareholder Particulars Amount (Rs.) as on 24th March 2005 Amount (Rs.) as on 18 th May 2007 Value of the shares held by a shareholder as on record date (5 th Jan,2004) (A) 100 shares @55 5,500 Shares in MRL 100 shares @125 12,500 @436 43,600 Shares in MTL 51.5 shares @80 4,120 @57 2,907 Total (B) 16,620 46,507 Net Value Addition (B-A) 11,120 41,007
  • 27. Reliance Industries Limited - A Unique Scheme of Arrangement- FACTS
    • PRE –ARRANGEMENT SCENARIO
    • Reliance Industries Limited was engaged in various businesses:
    • Coal based power business;
    • Gas based power business;
    • Financial services business;
    • Tele-Communication business
  • 28.
    • The family arrangement aims at
    • Segregation between the two Ambani Brothers
    • Provision for Specified Investors was made:
      • Holdings of RIL and other companies in the control of Mr. Mukesh Ambani were transferred to a wholly owned subsidiary, Reliance Industrial Investments and Holdings Limited (RIIHL) along with a Private Trust (Petroleum Trust).
      • RIIHL and Petroleum Trust were described as “ Specified Investors ” which renounced their rights in the scheme itself.
    RIL… demerger
  • 29.
    • As a result of demerger the shareholders of Reliance Industries Ltd. other than “Specified Investors” got one share each in the following four resulting companies for each share held in RIL as on the record date:
    • Reliance Energy Venture Ltd. (REVL)
    • Reliance Communication Venture Ltd. (RCOVL)
    • Reliance Capital Venture Ltd. (RCVL)
    • Reliance Natural Resources Limited (RNRL)
    • The shares of all these resulting companies got listed on the stock exchanges under the provisions of Cl 8.5.3.1 of the SEBI (DIP) Guidelines.
    RIL… demerger
  • 30. Benefits achieved…….. *No value after 26.05.06 has been considered as there has been further restructuring Particulars Amount (Rs.) 24th March 2006 Amount (Rs.) 26th May 2006* Value of the shares held by a shareholder as on record date (25 th Jan,2006) (A) 100 shares @928 92800 Shares in RIL 100 (@708) 70800 (@950) 95000 Shares in REVL 100 (@38) 3800 (@37) 3700 Shares in RCOVL 100 (@290) 29000 (@270) 27000 Shares in RCVL 100 (@24) 2400 (@23) 2300 Shares in RNRL 100 (@23) 2300 (@27) 2700 Total 108300 130700 Net benefit 15500 37900
  • 31. Bajaj Group Demerger - A Scheme of Arrangement for family settlement- FACTS
    • Bajaj Auto Limited has two distinct businesses, namely:
      • Vehicle manufacturing;
      • Financial Services;
    • It is desired to segregate them and the control should be divided between the two sons of Mr. Rahul Bajaj.
  • 32. Bajaj Group… demerger Bajaj Auto Vehicle Manufacturing Financial Service Bajaj Holding & Invest Bajaj Finserv Bajaj Auto (Holding Company)
  • 33.
    • Main Features:
    • Bajaj Auto will be demerger in three parts:
      • Bajaj Holding & Investment Ltd (BHIL)– Auto Business
      • Bajaj Fiserve Ltd – Financial Services
      • Bajaj Auto Ltd – Group Holding Company
    • Later the name of BHIL will be changed to Bajaj Auto and Existing Bajaj Auto will be Bajaj Holding & Investment
    • All the three companies will be separately Listed with exemption of the Rule 19(2)(b)
    • Shareholders of Bajaj Auto will get one share each in the three listed companies
    Bajaj Group… demerger
  • 34. REDUCTION OF CAPITAL
  • 35. Types of Reduction of Capital Writing off Losses & Fictitious Assets Correction of Over- Capitalization Distinguishment of the Liability in respect of unpaid portion of face value. Distribution of accumulated profits by Payment to shareholders a part of share capital.
  • 36. Reduction of Capital- A Strategic Step To Clean-up the Balance Sheet To rationalize the capital base Revival of Sick Company
  • 37. RESTRUCTURING STRATEGIES What's Your Move??
  • 38. FEW STRATEGIC MOVES Strategy I LISTING (Without offer to Public) Strategy II RAISING PROMOTERS’ HOLDING (Beyond 55%)
  • 39. FEW STRATEGIC MOVES..contd Strategy III ACQUISITION OF LISTED CO. ( Exemption from Takeover Code) Strategy IV INCREASEING THE RESOURCES (Without raising Capital)
  • 40. LISTING
    • Direct listing is costly & complicated
    • But Listing of Company provides for…..
    • Unlocking value of business
    • Brings liquidity
    • Attract investors for further growth
    Strategy I
  • 41. Strategy IA LISTING THROUGH MERGER
    • Small/loss making listed companies are selected by unlisted strong companies
    • Unlisted company is merged with listed company with maximum possible shares to promoters of unlisted Company
    • Promoters of Unlisted Company get shares in a listed entity
  • 42. Strategy IB LISTING THROUGH MERGER Acquisition of Regional Listed Company(RSE) Merger of financially sound unlisted co with listed co Now your Company is ready for Listing INDONEXT LISTING DIRECT LISTING
  • 43. Strategy II RAISING PROMOTERS’ HOLDING
    • Revised provisions of SEBI Takeover Code does not allow promoters to acquire even a single share beyond 55%
    • Specific exemption to Merger/Demerger
    • An Unlisted company is created by Promoters
    • This entity is merged with listed company
    • Promoters’ holding is raised up to 75%
  • 44. Strategy III ACQUISITION OF LISTED COMPANY
    • SEBI Takeover Code does not allow acquisition of shares of a listed company beyond 15% or Change in Control by any outsider without a PA
    • Specific exemption to Merger/Demerger
    • An Unlisted company is created by Acquirer
    • This company is merged with listed company
    • Acquirers’ holding may go up to 75% of increased capital base
    • The Management may also change.
  • 45. Strategy IV INCREASING THE RESOURCES
    • Basic purpose of merger is to Synergy of Resources, but the it also increases the capital base
    • High capital base make servicing of capital difficult
    • Proposed transferee company acquires shares in transferor company
    • Companies are merged
    • Crossholdings get cancelled
    • Resources got clubbed, capital base remain low. Effectively , increases EPS.
  • 46.
    • Restructuring offers tremendous opportunities for companies to grow & add value to the shareholders
    • It unlocks the true potential of the company
    • It is a Strategy for Growth & Expansion
    • It also helps in Cleaning up &
    • create Synergy of Resources
    To sum up……
  • 47.
    • It is the Company Secretary in the organisation who has to take proactive steps
    • “ From suggesting roadmap to the Company
    • till its implementation”
    • &
    • to achieve the underlined
    • objectives of Restructuring
    To sum up……
  • 48. Thanks a lot… Pavan Kumar Vijay