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Training FUTURUM : Restructuring Transactions under Common Control
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- 2. The Most CommonTypes of Restructurings Involving Entities Under Common Control Creation of a New Company and transfer of business to the new company (also referred to as spin-offs) in anticipation of a listing of securities or sale of business or debt raising or taking benefit of a tax advantageous territory etc. Group reorganisation involving moving of assets or entities within the group mainly driven by tax or financial considerations or for simplification of group structure. Similar to spin-offs, these could take several forms as these reorganisations are driven by varied necessities. Mergers and amalgamations of group entities are the most common forms of reorganisations.
- 3. Corporate Restructuring Expansion • Amalgamation •Absorption • Tender Offer • Asset Acquisition • Joint Venture Contraction • Asset Sale • Demerger : • Spin off • Equity carve out • Split off • Split up • Divestitures Corporate Control • Going Private • Equity Buyback • Leveraged Buyouts
- 4. Spin Off andSimultaneous Merger In order to restructure the hierarchy among entities under common control, below transactions occur. Source: presentation slide by UCC research team of KASB
- 5. Group Reorganizations Group reorganizationsinvolve the restructuring of the relationships between companies in a group (or under common control) and can take many forms, for example: Setting up a new holding company Changing the direct ownership of subsidiaries within the group (possibly involving the creation of a new intermediate holding company) Transferring businesses from one company to another
- 6. Group Reorganization :How to Account For?
- 7. Did I buya group of assets or a business? Why should I care? Determining whether an acquired group of assets is a business has proven to be one of the more challenging aspects of applying the current M&A accounting guidance Asset Acquisition Business Combination DO WE BUY BUSINESS OR ASSETS? HAVE ACCOUNTING AND TAX DIFFERENCES
- 8. UNDER COMMON “CONTROL” Whatis CONTROL? CONTROL CONCEPT BECOMES MORE COMPLEX Example : Company X holds 38% of the common shares of Company A. Company X does not hold any other instrument of Company A that might be converted to common shares in the future. Does Company X control Company A? Company X 38% Company A
- 9. Application – CompanyX It is possible! Depends on specific facts. More information required. Examples: What is the size of Company X’s shareholdings relative to size and dispersion of other shareholdings? The more voting rights Company X holds compared to anyone else, and the greater number of other vote- holders that would need to act together to outvote Company the more likely Company X has practical ability to direct Company A’s relevant activities Do other vote holders or other parties hold potential voting rights? Are there any other relevant contractual arrangements? What is the voting pattern at past shareholder meetings? Does a special relationship (e.g., reliance on intellectual property) exist between Company X and Company A? What level of exposure does Company X have to variability in returns?
- 10. The Control Model: An Overview An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Exposure to variable returns Power Link power- returns control
- 11. Assessing Control ofAn Investee Rights Ability to use power over the investee to affect its own returns Exposure (or rights) to variable returns of the investeeRelevant activitie s
- 12. Q: Advice forAssessing The Existence of Control Hint: Call an IFRS expert!
- 13. New Companies inCommon Control Transactions and Transfer within Group Formation of a new company to facilitate disposal of business Business brought together into a new company before an IPO Setting up a new top holding company in exchange for equity Setting up a new top holding company : transactions including cash consideration Inserting a new intermediate parent within an existing group Transferring businesses outside an existing group using a new company Transferring associates/joint ventures within an existing group
- 14. Accounting for BusinessCombinations involving entities or businesses under common control Pooling of interests method or Predecessor accounting Acquisition method The fresh-start method Capital reorganization accounting PSAK 38 (revisi 2012)
- 15. Training Desktop Date: See at the website “futurum corfinan” (2-day training) Venue : Hotel at Jakarta Pusat Notes : • Presentation slides will be distributed in softcopy • Minimum participants = 10 persons • After the training, participants are allowed to discuss about the training materials via email in the website Contact email : futurumcorfinan@gmail.com Visit Website and Training Testimonials : google “futurum corfinan”