unlocking the value through corporate restructuring gvalior seminar corp res 19.05.07

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Unlocking The Value Through Corporate Restructuring Pavan Kumar Vija Pavan Kumar Vija 19.05.2007

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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 restructuring.

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Page 1: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Unlocking The Value Through

Corporate Restructuring

Unlocking The Value Through

Corporate Restructuring

Pavan Kumar VijayPavan Kumar Vijay

19.05.2007

Page 2: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 3: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

TYPES OF RESTRUCTURING

REDUCTION OF

CAPITAL

MERGERMERGER

DEMERGER

Page 4: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

RESTRUCTURING

BIFRHigh Court

Approving AuthoritiesApproving Authorities

Page 5: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 6: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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.

Page 7: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

“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

Page 8: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 9: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 10: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 11: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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’

Page 12: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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”

Page 13: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

MERGER THROUGH BIFR MERGER THROUGH BIFR

AN EFFECTIVE

WAY

TO

REVIVE

YOUR

SICK COMPANY

Page 14: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

MERGER THROUGH BIFR ….. benefits

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

Page 15: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

DEMERGER DEMERGER

Reliance Natural Resources Ltd

Reliance Capital Ventures Ltd

Page 16: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

TYPES OF DEMERGER

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

Page 17: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

1. 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 withallocation of 60 % of the issue size to QIBs

Or2. 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)

Page 18: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 19: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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….

Page 20: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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.

Page 21: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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….

Page 22: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07
Page 23: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGC)

-Demerger Scheme-

FACTS

i. 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.

Page 24: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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.

Page 25: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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.

Page 26: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Financial Benefits to Shareholder

Particulars Amount (Rs.) as on 24th

March 2005

Amount (Rs.) as on

18th May 2007

Value of the shares held by a shareholder as on record date (5th Jan,2004) (A)

100 shares

@55

5,500

Shares in MRL 100 shares

@125

12,500

@436

43,600Shares 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

Page 27: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Reliance Industries Limited

- A Unique Scheme of Arrangement-

FACTS

PRE –ARRANGEMENT SCENARIO

Reliance Industries Limited was engaged in various businesses:

(i) Coal based power business;

(ii) Gas based power business;

(iii) Financial services business;

(iv) Tele-Communication business

Page 28: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 29: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 30: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Benefits achieved……..Particulars Amount

(Rs.)24th March 2006

Amount (Rs.)

26th May 2006*

Value of the shares held by a shareholder as on record date (25th 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

*No value after 26.05.06 has been considered as there has been further restructuring

Page 31: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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.

Page 32: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Bajaj Group… demerger

Bajaj AutoBajaj Auto

Vehicle ManufacturingVehicle Manufacturing Financial ServiceFinancial Service

Bajaj Holding & InvestBajaj Holding & Invest Bajaj FinservBajaj Finserv

Bajaj Auto(Holding Company)

Bajaj Auto(Holding Company)

Page 33: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 34: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

REDUCTION OF CAPITAL REDUCTION OF CAPITAL

Page 35: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Types of Reduction of Capital

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.

Page 36: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Reduction of Capital- A Strategic Step

Reduction of Capital- A Strategic Step

To Clean-up the Balance Sheet

To rationalize the capital base

Revival of Sick Company

Page 37: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

RESTRUCTURING STRATEGIES

RESTRUCTURING STRATEGIES

What's Your

Move??

Page 38: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy I

LISTING (Without offer to Public)

FEW STRATEGIC MOVESFEW STRATEGIC MOVES

Strategy II

RAISING PROMOTE

RS’ HOLDING

(Beyond 55%)

Page 39: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy III

ACQUISITION OF

LISTED CO.

(Exemption from Takeover Code)

Strategy IV

INCREASEING THE

RESOURCES

(Without raising Capital)

FEW STRATEGIC MOVES..contd

FEW STRATEGIC MOVES..contd

Page 40: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

LISTING 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

Page 41: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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

Page 42: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy IB

LISTING THROUGH MERGER

Acquisition of Regional Listed Company(RSE)

Acquisition of Regional Listed Company(RSE)

Merger of financially

sound unlisted co with listed co

Merger of financially

sound unlisted co with listed co

Now your Company is

ready for Listing

Now your Company is

ready for Listing

INDONEXT LISTING

INDONEXT LISTING

DIRECT LISTING DIRECT LISTING

Page 43: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy IIStrategy IIRAISING 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%

Page 44: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy IIIStrategy IIIACQUISITION 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.

Page 45: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Strategy IVStrategy IVINCREASING 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.

Page 46: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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……

Page 47: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

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……

Page 48: Unlocking The Value Through Corporate Restructuring   Gvalior Seminar Corp Res 19.05.07

Thanks a lot…

Pavan Kumar Vijay