FINANCE PROJECT

A Study on Amalgamation & Demerger trends in India Reliance ADAG

Name AN!RAG " Registration Num#er $%%&'&(()

S*+,IOSIS CENTER FOR DISTANCE -EARNING P!NE $%%&

DEC-ARATION ,* T.E -EARNER

This is to declare that I have carried out this project work myself in part fulfillment of the PGD,A/Finance +anagement Program of SCDL The work is original! has not "een copied from anywhere else and has not "een su"mitted to any other #niversity$Institute for an award of any degree$diploma

Date Place ,angalore

Signature Name AN!RAG "

TA,-E OF CONTENTS

C0a1ter 2 C0a1ter $ C0a1ter 7 C0a1ter ' C0a1ter 8 C0a1ter : C0a1ter & C0a1ter ) C0a1ter ( C0a1ter 2% ANNE<!RE

Introduction to ADAG33333333344' O#5ecti6e & Sco1e333333333332( Amalgamation333333333333444$2 Demerger33333333333333444$& Reason 9or Amalgamation & Demerger3347: -egal As1ects33333333333334'& Procedures in India33333333334448$ Trends in Amalgamation & demerger3338) India & Ne; glo#al Economic Scenario334:( Conclusion333333333333334&'

I Pro1osal333333333333333333333&& II ,i#liogra10y33333334433333333333444&(

&

C0a1ter 2

'

24 Introduction /ADAG
Reliance Anil D0iru#0ai Am#ani Grou1 (usually referred as Reliance Grou1) is one of India*s largest conglomerates! head+uartered in ,avi -um"ai! India The company! which was formed after Dhiru"hai .m"ani*s "usiness empire was divided up! is headed "y his younger son .nil .m"ani It has a market capitali/ation of #S0 11 "illion! net assets #S0 2 "illion The .D.3 4eliance 3roup has a "usiness presence that e5tends to over %6!666 towns and ' 1 lakhs ('16!666) villages in India! and across the glo"e The shareholder "ase is over 1% million! among the largest in the world The group is present in many sectors including Telecom! Capital! Power! Infrastructure! 7ntertainment and 8ealth 8istory

4eliance group was founded "y Dhiru"hai .m"ani in 19:: as a polyester firm Dhiru"hai started the e+uity cult in India 4eliance later entered into financial services! petroleum refining! power sector ;y %66% 4eliance had grown into a 011 "illion conglomerate .fter the death of Dhiru"hai .m"ani on <uly :! %66%! 4eliance was headed "y his sons The group was formed after the two feuding "rothers -ukesh .m"ani and .nil .m"ani! split 4eliance Industries .nil .m"ani got the responsi"ility of 4eliance Infocomm! 4eliance 7nergy! 4eliance Capital and 4,4L This led to a new "eginning called RE-IANCE Later this group entered the power sector through 4eliance Power! and the entertainment sector "y ac+uiring .dla"s

=perations Communications

4eliance >orld

4eliance 3lo"alcom 4eliance Infratel ?anco 4eliance >orld 4eliance 3lo"alcall 4eliance Icall 4eliance Digicom 4eliance ;P= IPT? 4eliance 8ooker ;ureau

4eliance Communication (R Com) is the second largest Telecom company in India in terms of customers The Company has a customer "ase of 1%1 million including over % 1 million individual overseas retail customers It ranks among the Top 1 Telecom companies in the world "y num"er of customers in a single country 4eliance Communications corporate clientele includes %!166 Indian and multinational corporations! and over @66 glo"al! regional and domestic carriers . panAIndia network! covering over %'!666 towns and :66!666 villages has "een esta"lished "y 4eliance Communications 4eliance Communications owns and operates the ne5t generation IP ena"led connectivity infrastructure comprising over 196!666 kilometers of fi"er optic ca"le systems in India! #S.! 7urope! -iddle 7ast! ;osnia! 8er/egovina and the .sia Pacific region 4eliance 3lo"alcom serves over %!166 enterprises! %66 carriers and % 1 million retail customers in 1:& countries across : continents :

4eliance Communication has ac+uired &3 license in 1& circles out of total %% circles 4eliance has launched &3 services in 9 circles "y %: <anuary %611 Ca1ital

4eliance Life Insurance 4eliance 3eneral Insurance 4eliance ?enture 4eliance -utual Bund 4eliance -oney 4eliance Securities 4eliance Consumer Binance 4eliance ?enture Capitalist 4eliance .sset 4econstruction 4eliance P-S IC7C A Stock e5change

4eliance Capital =Rel Ca1> has interests in asset management and mutual funds! life and general insurance! private e+uity and proprietary investments! stock "roking! depository services! distri"ution of financial products! consumer finance and other activities in financial services Reliance +utual Fund is India*s largest mutual fund 4eliance 3eneral Insurance is a general insurance company and among the top & private sector insurers 4eliance -oney is "rokerage and distri"utor of financial products in India with over % 2 million customers and has the largest distri"ution network Its "rokerage! arm 4eliance Securities is planning to invest 4s &66 crore (4s & "illion) for upgrading infrastructure! hiring staff and enhancing the capa"ility of its online trading platform In -arch! %611 ,ippon Life Insurance! <apan*s "iggest life assurer "y assets! agreed to "uy a %: per cent stake in 4eliance Life Insurance for 4s&!6:% cr

Po;er

4osa Thermal Power Station

7lectricity transmission grid in eastern India

4eliance ,atural 4esources Limited (4,4L) 4eliance Coal 4esources Tilaya #-PP A '666-> Drishanapatnam #-PP A '666-> A on 0old Sasan #-PP A '666-> Dadri power plant A @666-> A On 0old Chitrangi power project A '666-> 4osa Power Project A 1%66-> ;uti"ori power Project! ,agpur A :66-> Samalkot Power Project A %'66-> Dhiru"hai .m"ani Solar Park A '6-> >ind Power A '66-> Solar Power A 166-> 8ydropower A %166->

Distri#ution

;S7S Delhi ;S7S 4ajdhani ;S7S Eamuna 4eliance Power -um"ai

4eliance Power =R Po;er> currently has a generation capacity of 1166-> The company is in the process of achieving 1666-> "y %61%! 12666-> "y %611 and &1666-> "y %6%6 The company is present in all verticals from generation to transmission to distri"ution The company is having pan India projects and is currently having a "ig presence in -um"ai and #ttar Pradesh The #nited ,ations registered 4eliance PowerFs Sasan power project on Be" %! %611 to earn as many as %% 1 million credits in the ne5t 16 years In9rastructure

./ad ,agar Station! -um"ai #nder Construction

-um"ai -etro AAAA Line1 A 1% km G Line% A '6 km Delhi .irport -etro 75press AAAA =range Line A %& km 4eliance .irport Developers (4.DPL)A1 .irports 4eliance Sealink pvt ltd AAAA % Sealinks 4eliance 4oad projects AAAA 11 4oad Projects A 1666 km 4eliance S7H AAAA ,avi -um"ai G Dolkata 4eliance Power Transmission Pvt Ltd

4eliance Infrastructure =R In9ra> has emerged as the largest concessionaire of ,8.I with 11 road projects totaling 1!666 km worth a"out 4s 1%6"n (#S0 % : "illion) with more than 16!666 people working at various sites Constructing -etro systems in Delhi and -um"ai totaling more than 21 km of track 4eliance Infrastructure is also "idding for projects in ,epal and -aldives

Reliance ,IG Entertainment +o6ies and Tele6ision

Dream>orks SD3 Studios (CoAPartnership) 4eliance Pictures 4eliance -edia>orks Ltd (formerly .dla"s) 4eliance -edia>orld (formerly Lowry Digital) 4eliance Synergy 4eliance .nimation ;I3Bli5 A -ovies on rent ;I3 Cinemas ;I3 -usic G ?ideo 4eliance 8ome ?ideo 4eliance ,D Studio 4-> Studio

,roadcasting

;I3 B- 9% 2 A 4adio stations operating in more than 16 cities 4eliance ;roadcasting (4;,L) 4eliance Digicom 4eliance Digital T? ;I3 T? A DT8 service Imagine Show"i/ ;I3 -agic

,IG / C,S channels

16

;ig C;S Prime ;ig C;S Spark ;ig C;S Love

Gaming

Hapak Codemasters <ump 3ames

Internet

;I3.DD. com A social networking site ;I3=E7 com The Plot ;log A ;I3 Cinemas Hapak com

Ot0ers

;I3 Street ;I3 -aps ;I3 Live ;I3 Digital ;I3 4each ;I3 7vents ;ig Cinema is IndiaFs largest cinema chain with over 11: screens spread across India!

#S! -alaysia and ,etherlands and caters to over &1 million consumers ;I3 Cinemas has esta"lished leadership in film e5hi"ition in India with %1& screens and accounts for 16 to 11I of "o5 office contri"utions of large movies ;I3 B- 9% 2 is a leading network of B- 4adio stations with B- stations in more than 16 Indian cities Reliance .ealt0

11

4eliance 8ealth is providing integrated health services through one of the finest hospitals in .sia J T0e "o?ila#en D0iru#0ai Am#ani .os1ital at .ndheri! -um"ai It also plans to venture into diversified fields like Insurance .dministration! 8ealth care Delivery and Integrated 8ealth! 8ealth Informatics and Information -anagement and Consumer 8ealth

Ot0er

4eliance Technology ?entures 4eliance Cement 4eliance .viation Tour G Travels -udra Communication ('9I stake! rest 11I sold to =mnicom 3roup) <ava 3reen A . cafe chain with more than 166 outlets ,IS Sparta A . corporate training Institute DTDC Courier G Cargo Ltd Eatra com

-ajor ac+uisitions

-etro Cinema ac+uired "y ;ig 7ntertainment c %661

1%

Codemasters company ac+uired in %616

?anco Company ac+uired in %66@

Lowry Digital

+AJOR Ac@uisitions

+ay $%%% A ;S7SAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA 4eliance 7nergy(Infrastructure) Oct $%%7 A BL.3 Telecom! %62-n0AAAAAAAAAAAAAAAAAAAAAAAAA 4eliance Communication July $%%8 A -etro .dla"s (11I stake)! 2'-n0AAAAAAAAAAAAAAAA 4eliance ;ig 7ntertainment No6 $%%: A Travelmate services (166I stake)AAAAAAAAAAAAAAAAAA4eliance Capital July $%%& A Eipes Services #S.! &66-n0AAAAAAAAAAAAAAAAAAAA 4eliance Communication July $%%& A Swan Telecom (now 7tisalat D;) (9 9I stake)AAAAAAA 4eliance Communication Dec $%%& A ,D Studio (16I stake)! &1-n0AAAAAAAAAAAAAAAAAAAA 4eliance ;ig 7ntertainment A1r $%%) A Lowry Digital #S.! 2 1-n0AAAAAAAAAAAAAAAAAAAA 4eliance ;ig 7ntertainment A1r $%%) A e>ave>orld#D (96I stake)AAAAAAAAAAAAAAAAAAAAAAAAAA4eliance 3lo"alcom +ay $%%) A ?ancoAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance 3lo"alcom Se1t $%%) A >all street finance (&:I stake)AAAAAAAAAAAAAAAAAA4eliance -oney75press +ar $%%( A SynergyAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance -ediaworks No6 $%%( A Kuant Capital AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital Jan $%2% A Ila" #D Ltd AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance -ediaworks A1r $%2% A Codemasters #D (16I stake)AAAAAAAAAAAAAAAAAAAAHapak July $%2% A Digica"le AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance ;ig 7ntertainment 1&

Jan $%22 A Imagine Show"i/AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance ;I3 7ntertainment Oct $%22 A .nnapurna StudiosAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance ;I3 7ntertainment Se1t $%22 A ;loom"erg #T? (::I stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital

+INOR Sta?es

Se1t $%2% A Derala .irport (11I stake)! '2-n0AAAAAAAAAAAAAAAAAAAAA4eliance Infrastructure Se1t $%2% A Trent (9I stake)! ' 1-n0AAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital Aug $%2% A IC7C (%:I stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA 4eliance Capital A1r $%2% A Pathway world (minor stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance 7+uity +ay $%2% A Bame Cinema ('2 1I stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance -ediaworks Se1t $%2% A Trinethra Infra (1I stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital +ay $%%& A ,etwork1@ group (16I stake)AAAAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital +ay $%%& A T? Today group (1' 6%I stake)AAAAAAAAAAAAAAAAAAAAAAAAAA4eliance Capital Oct $%%) A 8ong Dong -ercantile (11I stake)AAAAAAAAAAAAAAAAAAAAAAA4eliance Capital

Failed deals

+ar $%%& A 4eliance A .ir Deccan June $%%) A 4eliance Communication A -T, Aug $%%) A ,ew Castle 7PL clu" Se1t $%%) A ;I3 7ntertainment A -3Se1t $%2% A 4eliance Infratel A 3TL

1'

-ajor joint ventures

4;,L A C;S ,IS Sparta 4eliance A Dream>orks Codemasters A . ;ritish video gaming company 4eliance Infra A I4; Infra ;I3 7ntertainment A ;;C

Logo The RE-IANCE logo was launched in %66: "y group "rand am"assador .mita"h ;achan The 4eliance .pe5 conveys the urge for progress ;lue represents sta"ility and 4ed represents dynamism =ther "rand am"assadors of companies are 8ritik 4oshan! .nushka Sharma for 4eliance Communication! ."hishek ;achchan and Sonu ,igam for ;ig 9% 2 B7arlier ?irender Sehwag used to "e the "rand am"assador of 4eliance Communication then known as 4eliance Infocom 4eliance -o"ile is also the main sponsor of ICC Cricket >orld Cup and ICC >orld Twenty%6 Cricket tournaments

3eneral Bacts

11

3roup company 4eliance 3lo"alcom is the world*s largest sealink ca"les company with more than 1!16!666 km of sea ca"les 4eliance -utual Bund is India*s largest mutual fund company with assets of more than 1 1 trillion rupees 4eliance -ediaworld operates the world*s largest dome theater! I-.C! in -um"ai 4eliance power has placed >orld*s largest order worth 0@ %9 "illion to Shanghai 7lectric 3roup to supply power e+uipment "ased on supercritical technology 4eliance Infrastructure is the first private company in India to construct a rail project (Delhi .irport -etro 75press) on PPP "asis! the project "ecame operational on Be"ruary! %611 4eliance power has "ecome the first Indian company to earn Car"on credits! #nited ,ations registered 4eliance PowerFs Sasan power project to earn as many as %% 1 million credits in the ne5t 16 years! the #, Clean Development -echanism! the worldFs secondA "iggest greenhouse gas market issues trada"le credits to emissionA"usting projects in developing countries 4eliance InfrastructureFs Dahanu Thermal Power Station (DTPS) The 166 -> project! around 166 km north of -um"ai! has emerged the only power plant in the world to win a certification A L IS= 16661M%611 L for energy management systems and endeavours in the field of energy use and environment conservation 4eliance Communication was the first company in India to issue "ills in "raille for visually impaired customers 3lo"al Presence 3roup company ;I3 Cinemas is IndiaFs largest cinema chain with over 11: screens spread across India! #S! -alaysia and ,etherlands and caters to over &1 million viewers ;I3 Cinema has a pan #S. footprint with over %61 screens present across %' cities! In -alaysia with 2% screens that play 8ollywood features "esides Chinese and Tamil films that cater to the 1 1 million Tamil populations In %669! ;I3 Cinemas esta"lished a presence in ,etherlands "y associating with Pathe Theatres across & cities to "egin screening Indian movies It also set up ,epalFs first -ultiple5 in Dathmandu ;I3 B- 9% 2 is operating radio station in Singapore and ;hutan 4eliance Power is having coal mines in Indonesia 4eliance has also made major ac+uisitions in #D and #S.

1:

Corporate sponsorship 4eliance is the main sponsor of Cricket Tournaments 4eliance sponserd the cricket world cup 4eliance >orld Cup in 19@2 and 199: 4eliance -o"ile is the main sponsor of ICC Cricket >orld Cup and ICC >orld Twenty%6 Cricket tournaments

$%22 Cric?et Aorld Cu1

4eliance sponsored the ICC %611 Cricket >orld Cup held in India! Sri Lanka and ;angladesh 4eliance Capital! has tied up with the International Cricket Council and a glo"al nonAprofit organisation! room to read! to promote literacy and gender e+uality in education "y contri"uting 4s %1!666 for every si5 hit during the >orld Cup The initiative is named ,oundaries For ,oo?s

ICC Aorld T;enty$%

4eliance -o"ile also sponsored the ICC Cricket >orld Cup %662 held in >est Indies and ICC >orld Twenty%6 in %662! %66@ and %616 4eliance 3roup was in race in %616 to sponsor the Indian national cricket team "ut lost to Sahara India Pariwar 4eliance 3roup also "id for Indian Premier League for -um"ai Team "ut missed "y a small amount

Reliance ICC Player Ran?ings

The 4eliance ICC Player 4ankings are the official guide to the relative merits of "atsmen! "owlers and allArounders in Test match and =DI cricket The 4eliance -o"ile ICC =DI >omenFs 4ankings provide an opportunity to showcase the leading stars in the womenFs international game Corporate social responsi"ility 12

Education

Dhiru"hai .m"ani Institute of Information and Communication Technology DA/ IICT A 3ujarat

Dhiru"hai .m"ani Institute of Information and Communication Technology DA/ IICT A Dolkata (#nder Construction)

<amna"en 8irachand .m"ani School! 4aigad Dokila"en Dhiru"hai .m"ani ,ursing College ("DA/NC) A -um"ai ;I3 .nimation Infotainment G -edia School (,IG AI+S) A Pune Dhiru"hai .m"ani #niversity (DA!) A ;hopal (#nder Construction)

>ith an aim to provide focused studies and research in Information and Communication Technology (ICT)! the 4eliance 3roup announced the setting up of the Dhiru"hai .m"ani #niversity (D.#) The D.# will "e soon set up in 116 acres of land and the 4eliance 3roup has earmarked 4s 166 crore for developing higher education in -adhya Pradesh! a company release said The 3overnment of -adhya Pradesh has issued a letter of intent and also provided land for the proposed varsity The #niversity will provide focused studies and research in ICT and also focus on niche programmes relevant to the economic development of the state The D.# will offer "oth undergraduate and postgraduate programmes with emphasis on research activities in ICT and allied areas

.os1itals

Dokila"en Dhiru"hai .m"ani 8ospital G -edical 4esearch Institute! -um"ai Dokila"en .m"ani 8ospital 3uwahati Centre! 3uwahati Dhiru"hai .m"ani 8ospital! Lodhivali! 4aigad district 1@

C0a1ter $

19

$ SelectionB Sco1e & O#5ecti6es

.ll over world people wish growth in positive direction This project an attempt to study and analyse the science "ehind .malgamation G Demerger of Companies SCOPE OF T.E ST!D* This study encompasses analysis of "usiness house .D.3 3roup India The scope however is limited to research "ased on secondary data as the o"jective of the project is to analy/e investor preference to 3old O,JECTICES OF T.E ST!D* To analy/e and understand the procedures involved in .malgamation G Demerger To understand the different reasons of .malgamation G Demerger To study the "enefits of .malgamation G Demerger

-I+ITATION OF T.E ST!D* 1) %) ?arious secondary sources were considered for getting the statistical data and hence the ;eing a non funded project Data freely availa"le was used! sources of which are Internet

authenticity is limited to the source sources ! ;ooks! <ournals! different >e"sites etc

%6

C0a1ter 7

%1

74 Amalgamation
Amalgamation =also called as Consolidation> is the act of merging many things into one In "usiness! it often refers to the mergers and ac+uisitions of many smaller companies into much larger ones In the conte5t of financial accounting! consolidation refers to the aggregation of financial statements of a group company as consolidated financial statements The ta5ation term of consolidation refers to the treatment of a group of companies and other entities as one entity for ta5 purposes #nder the 8als"ury*s Laws of 7ngland! *amalgamation* is defined as Na "lending together of two or more undertakings into one undertaking! the shareholders of each "lending company! "ecoming! su"stantially! the shareholders of the "lended undertakings There may "e amalgamations! either "y transfer of two or more undertakings to a new company! or to the transfer of one or more companies to an e5isting companyN Thus! the two concepts are! su"stantially! the same 8owever! the term amalgamation is more common when the organi/ations "eing merged are private schools or regiments Types of "usiness amalgamations There are three forms of "usiness com"inationsM

Statutory -ergerM a "usiness com"ination that results in the li+uidation of the ac+uired companyFs assets and the survival of the purchasing company Statutory ConsolidationM a "usiness com"ination that creates a new company in which none of the previous companies survive

%%

Stock .c+uisitionM a "usiness com"ination in which the purchasing company ac+uires the majority! more than 16I! of the Common stock of the ac+uired company and "oth companies survive .malgamationM -eans an e5isting Company which is taken over "y another e5isting company In such course of amalgamation! the consideration may "e paid in NcashN or in NkindN! and the purchasing company survives in this process

Terminology

ParentAsu"sidiary relationshipM the result of a stock ac+uisition where the parent is the ac+uiring company and the su"sidiary is the ac+uired company Controlling InterestM >hen the parent company owns a majority of the common stock ,onAControlling Interest or -inority InterestM the rest of the common stock that the other shareholders own >holly owned su"sidiaryM when the parent owns all the outstanding common stock of the su"sidiary Com1any is formed when in the process of the amalgamation! the com"ined company is

formed out of the transaction The amalgamated company is otherwise called the transferee company The company or companies! which merge into the new company! are called the transferor companies and! the company! into which the transferor companies merge! is known as the transferee company N.malgamating companyN M The company or companies! which are merged! are called the Namalgamating companiesN The amalgamating company or companies are also called the Ntransferor company$companies N dsd Date .ccounting treatment (#S 3..P) . parent company can ac+uire another company in two waysM

;y purchasing the net assets ;y purchasing the common stock of another company

%&

4egardless of the method of ac+uisitionO direct costs! costs of issuing securities and indirect costs are treated as followsM

Direct costs! Indirect and general costsM the ac+uiring company e5penses all ac+uisition related costs as they are incurred Costs of issuing securitiesM these costs reduce the issuing price of the stock

Purc0ase o9 Net Assets Treatment to t0e ac@uiring com1any >hen purchasing the net assets the ac+uiring company records in its "ooks the receipt of the net assets and the dis"ursement of cash! the creation of a lia"ility or the issuance of stock as a form of payment for the transfer Treatment to t0e ac@uired com1any The ac+uired company records in its "ooks the elimination of its net assets and the receipt of cash! receiva"les or investment in the ac+uiring company (if what was received from the transfer included common stock from the purchasing company) If the ac+uired company is li+uidated then the company needs an additional entry to distri"ute the remaining assets to its shareholders Purc0ase o9 Common Stoc? Treatment to t0e 1urc0asing com1any >hen the purchasing company ac+uires the su"sidiary through the purchase of its common stock! it records in its "ooks the investment in the ac+uired company and the dis"ursement of the payment for the stock ac+uired Treatment to t0e ac@uired com1any The ac+uired company records in its "ooks the receipt of the payment from the ac+uiring company and the issuance of stock FAS, 2'2 Disclosure Re@uirements B.S; 1'1 re+uires disclosures in the notes of the financial statements when "usiness com"inations occur Such disclosures areM

The name and description of the ac+uired entity and the percentage of the voting e+uity interest ac+uired The primary reasons for ac+uisition and descriptions of factors that contri"uted to recognition of goodwill

%'

The period for which results of operations of ac+uired entity are included in the income statement of the com"ining entity The cost of the ac+uired entity and if it applies the num"er of shares of e+uity interest issued! the value assigned to those interests and the "asis for determining that value .ny contingent payments! options or commitments The purchase and development assets ac+uired and written off Treatment o9 good;ill im1airments

If ,onAControlling Interest (,CI) "ased on fair value of identifia"le assetsM impairment taken against parent*s income G 4$7 If ,CI "ased on fair value of purchase priceM impairment taken against su"sidiary*s income G 4$7

4eporting intercorporate interest L investments in common stock 24 $%D o;ners0i1 or less >hen a company purchases %6I or less of the outstanding common stock! the purchasing companyFs influence over the ac+uired company is not significant (.P; 1@ specifies conditions where ownership is less than %6I "ut there is significant influence) The purchasing company uses the cost method to account for this type of investment #nder the cost method! the investment is recorded at cost at the time of purchase The company does not need any entries to adjust this account "alance unless the investment is considered impaired or there are li+uidating dividends! "oth of which reduce the investment account Liquidating dividends M Li+uidating dividends occur when there is an e5cess of dividends declared over earnings of the ac+uired company since the date of ac+uisition 4egular dividends are recorded as dividend income whenever they are declared Impairment loss M .n impairment loss occurs when there is a decline in the value of the investment other than temporary

%1

$4 $%D to 8%D o;ners0i1 E Associate com1any >hen the amount of stock purchased is "etween %6I and 16I of the common stock outstanding! the purchasing companyFs influence over the ac+uired company is often significant The deciding factor! however! is significant influence If other factors e5ist that reduce the influence or if significant influence is gained at an ownership of less than %6I! the e+uity method may "e appropriate (B.S; interpretation &1 (BI, &1) underlines the circumstances where the investor is una"le to e5ercise significant influence) To account for this type of investment! the purchasing company uses the e+uity method #nder the e+uity method! the purchaser records its investment at original cost This "alance increases with income and decreases for dividends from the su"sidiary that accrue to the purchaser Treatment of Purchase DifferentialsM .t the time of purchase! purchase differentials arise from the difference "etween the cost of the investment and the "ook value of the underlying assets Purchase differentials have two componentsM

The difference "etween the fair market value of the underlying assets and their "ook value 3oodwillM the difference "etween the cost of the investment and the fair market value of the underlying assets

Purchase differentials need to "e amorti/ed over their useful lifeO however! new accounting guidance states that goodwill is not amorti/ed or reduced until it is permanently impaired! or the underlying asset is sold 74 +ore t0an 8%D o;ners0i1 E Su#sidiary >hen the amount of stock purchased is more than 16I of the outstanding common stock! the purchasing company has control over the ac+uired company Control in this conte5t is defined as a"ility to direct policies and management In this type of relationship the controlling company is the parent and the controlled company is the su"sidiary The parent company needs to issue consolidated financial statements at the end of the year to reflect this relationship

%:

Consolidated financial statements show the parent and the su"sidiary as one single entity During the year! the parent company can use the e+uity or the cost method to account for its investment in the su"sidiary 7ach company keeps separate "ooks 8owever! at the end of the year! a consolidation working paper is prepared to com"ine the separate "alances and to eliminate the intercompany transactions! the su"sidiaryFs stockholder e+uity and the parentFs investment account The result is one set of financial statements that reflect the financial results of the consolidated entity

C0a1ter '
%2

'4 Demerger
Demerger is a form of corporate restructuring in which the an entity*s "usiness operations are segregated into one or more components It is the converse of a merger or ac+uisition . demerger can take place through a spin out "y distri"uted or transferring the shares in a su"sidiary holding the "usiness to company shareholders carrying out the demerger The demerger can also occur "y transferring the relevant "usiness to a new company or "usiness to which then that company*s shareholders are issued shares of Demergers can "e undertaken for various "usiness and nonA"usiness reasons! such as government intervention! "y way of antiAtrust law! or through decarteli/ation 4 The act of splitting off a part of an e5isting company to "ecome a new company! which operates completely separate from the original company Shareholders of the original company are usually given an e+uivalent stake of ownership in the new company . demerger is often done to help each of the segments operate more smoothly! as they can now focus on a more specific task opposite of merger . demerger is the opposite of an ac+uisition L a company spins off some "usiness it owns into a completely separate company . demerger is usually carried out "y distri"uting shares in the "usiness to "e spun off to shareholders of the company carrying out the demerger! in proportion to their shareholding in the original company

%@

Demergers can have "eneficial effects on the +uality of management as they allow the management of demerged companies to concentrate on their core "usiness! they make companies easier for investors to analyse ("y simplifying the "usiness) and they often demonstrate a management focus on increasing shareholder value . demerger may "e full! or partial . partial demerger means that the parent company retains a stake (sometimes a majority stake) in the demerged "usiness The motive for a partial demerger is sometimes to force the market to separately value the "usiness that is demerged! in the e5pectation that this will lead to a higher sum of parts valuation of the parent company Demerger is a form of corporate restructuring =ne of the prime reasons why large corporate houses go in for demerger is to increase the role of specialisation in the particular segment In case of large conglomerates! demerging entities often are the departments which are growing at an impressive rate and have su"stantial potential Demerger is the converse of a merger or ac+uisition It descri"es a form of restructure in which shareholders or unit holders in the parent company gain direct ownership of the demerged entity or the su"sidiary entity #nderlying ownership of the shares of the company$ trusts that formed part of the group does not change The company or entity that ceases to own the entity is called the demerging entity If the parent entity holds a majority stake in the demerged entity! the resulting company is referred to as the su"sidiary Sections &91 to &9' of the Companies .ct! 191: deal! interAalia with the reconstruction and amalgamation of companies or what is commonly referred to as PmergersQ The procedures contemplate an application "y the company to the concerned 8igh Court "y way of a scheme of compromise or arrangement with its creditors or mem"ers or any class of its mem"ers Such a Scheme is a via"le option for the amalgamation of two or more Indian companies -oreover! sections &91 to &9' of the .ct envisage a Psingle window clearanceQ "y providing a composite code for facilitating mergers and amalgamations which o"viates the need for making multiple applications under the .ct and ensures that the interested entities are not put through unnecessary and cum"ersome procedures involving protracted conse+uences for implementing such schemes Sec &96 A Interpretation of sections &91 and &9& (Companies .ct! 191:) %9

RIn sections &91 and &9&! (") the e5pression NarrangementN includes a reorganisation of the share capital of the company "y the consolidation of shares of different classes! or "y the division of shares into shares of different classes or! "y "oth those methodsS O and

Su" Section 19.. of Section % of Income Ta5 .ct! 19:1M R(19AA) PdemergerQ! in relation to companies! means the transfer! pursuant to a scheme of arrangement under sections &91 to &9' of the Companies .ct! 191: (1 of 191:)! "y a demerged company of its one or more undertakings to any resulting company in such a manner thatL (i) all the property of the undertaking! "eing transferred "y the demerged company! immediately "efore the demerger! "ecomes the property of the resulting company "y virtue of the demergerO (ii) all the lia"ilities relata"le to the undertaking! "eing transferred "y the demerged company! immediately "efore the demerger! "ecome the lia"ilities of the resulting company "y virtue of the demergerO (iii) the property and the lia"ilities of the undertaking or undertakings "eing transferred "y the demerged company are transferred at values appearing in its "ooks of account immediately "efore the demergerO (iv) the resulting company issues! in consideration of the demerger! its shares to the shareholders of the demerged company on a proportionate "asisO (v) the shareholders holding not less than threeAfourths in value of the shares in the demerged company (other than shares already held therein immediately "efore the demerger! or "y a nominee for! the resulting company or! its su"sidiary) "ecome shareAholders of the resulting company or companies "y virtue of the demerger! otherwise than as a result of the ac+uisition of the property or assets of the demerged company or any undertaking thereof "y the resulting companyO (vi) the transfer of the undertaking is on a going concern "asisO (vii) the demerger is in accordance with the conditions! if any! notified under su"Asection (1) of section 2%. "y the Central 3overnment in this "ehalf

&6

Explanation 1.LBor the purposes of this clause! PundertakingQ shall include any part of an undertaking! or a unit or division of an undertaking or "usiness activity taken as a whole! "ut does not include individual assets or lia"ilities or any com"ination thereof not constituting a "usiness activity Explanation 2. Bor the purposes of this clause! the lia"ilities referred to in su"Aclause ( ii)! shall includeL (a) the lia"ilities which arise out of the activities or operations of the undertakingO (!) the specific loans or "orrowings (including de"entures) raised! incurred and utilised solely for the activities or operations of the undertakingO and (c) in cases! other than those referred to in clause ( a) or clause (!)! so much of the amounts of general or multipurpose "orrowings! if any! of the demerged company as stand in the same proportion which the value of the assets transferred in a demerger "ears to the total value of the assets of such demerged company immediately "efore the demerger Explanation ". Bor determining the value of the property referred to in su"Aclause ( iii)! any change in the value of assets conse+uent to their revaluation shall "e ignored Explanation #. Bor the purposes of this clause! the splitting up or the reconstruction of any authority or a "ody constituted or esta"lished under a Central! State or Provincial .ct! or a local authority or a pu"lic sector company! into separate authorities or "odies or local authorities or companies! as the case may "e! shall "e deemed to "e a demerger if such split up or reconstruction fulfils Rsuch conditions as may "e notified in the =fficial 3a/ette@%! "y the Central 3overnmentSO (19AAA) Pdemerged companyQ means the company whose undertaking is transferred! pursuant to a demerger! to a resulting companyOS Demerger of a company takes place when

&1

1 DeAmerger is essentially a scheme of arrangement under Section &91 to &9' of the Companies .ct! 191: re+uiring approval "yO i majority of shareholders holding shares representing threeAfourths value in meeting convened for the purpose! andO ii Sanction of 8igh Court % DeAmerger involves TtransferF of one or more TundertakingsF & The transfer of TundertakingsF is "y the demerged company! which is otherwise known as Transferor Company The company to which the undertaking is transferred is known as resulting company which is otherwise known as TTransferee CompanyF 75isting provisions relating to amalgamations of companies were rationalised and new ones relating to demerger of companies! or sale$transfer of "usiness as a going concern through slump sales were introduced In demergers! ta5 "enefits and concessions availa"le to any undertaking are made availa"le to the undertaking on its transfer to the resulting company The condition regarding continuity of the same "usiness for the allowa"ility of loss to an assessee under Section 2% of the IncomeATa5 .ct! 19:1 was dispensed with The accumulated losses and una"sor"ed depreciation in a demerger is allowed to "e carried forward "y the resulting company if these are directly relata"le to the undertaking proposed to "e transferred >here it is not possi"le to relate these to the undertaking! such losses and depreciation will "e apportioned "etween the demerged company and the resulting company in proportion of the assets coming to the share of each as a result of demerger Ta5 "enefit to such "usiness reorganisation is limited to transfer of specific assets! which would amount to sale of assets and not "usiness reorgani/ation Demerger And S1in O99FOut .nother term commonly associated with demerger is that of a Tspin outF or Tspin offF Spin out refers to the process when a division of a company or organi/ation "ecomes an independent "usiness The NspinAoutN company takes assets! intellectual property! technology! and$or e5isting products from the parent organi/ation Shareholders of the parent company &%

receive e+uivalent shares in the new company in order to compensate for the loss of e+uity in the original stocksO thus! as the moment of spinAoff! the ownership of the original and spunAoff companies are identical . demerger can take place through a spin out "y distri"uted or transferring the shares in a su"sidiary holding the "usiness to company shareholders carrying out the demerger The demerger can also occur "y transferring the relevant "usiness to a new company or "usiness to which then that company*s shareholders are issued shares of

Demerger also take place through the process of TdecartelisationF! i e the transition of a national economy from monopoly control "y groups of large "usinesses! known as cartels! to a free market economy Demerged Com1any and Resulting Com1any / +eaning o9 According to $u!%section &19AAA' of $ection 2 of the Income%tax Act( 19)1( Gde/merged com1anyH means the company whose undertaking is transferred! pursuant to a deAmerger! to a resulting company According to $u!%section &#1A' of $ection 2 of the Income%tax Act( 19)1 Gresulting com1anyH means one or more companies (including a wholly owned su"sidiary thereof) to which the undertaking of the deAmerged company is transferred in a demerger and! the resulting company in consideration of such transfer of undertaking! issues shares to the shareholders of the deAmerged company and includes any authority or "ody or local authority or pu"lic sector company or a company esta"lished! constituted or formed as a result of demerger The definition of Tresulting companyF has clearly "rought out three important re+uirements while esta"lishing its relationship with deAmerging company They areL

&&

1 Consideration for transfer of undertaking would "e "y issue of shares only "y resulting company RPrice ConsiderationS % Such consideration would "e paid only to the shareholders of deAmerged company & 4esulting company can also "e a su"sidiary company of a deAmerged company It is now a just and proper statement to state that! demergers are a fairly common term involved with corporate restructuring nowadays They provide an opportunity to create individual profit centres and investors in the company also "enefit from the process as there is fresh valuation of the demerged entity which in turn often results in an increase in the share price Demerger is often done with an eye to segregate! categories and more importantly specialise a particular segment of a corporate entity 8owever due to the creation of an altogether new "usiness entity! the same re+uires prudence and astute decision making on the part of the investor The following are some of the important points and key notes that the investors must make and take heed of in case of Demerger of a corporate restructuring EItent o9 se1aration Birst! the activities separated at the time of demerger are a critical factor It is important to remem"er that the overall si/e of the "usiness entity and the e5tent of the profits that it makes is one important factor that determines the pricing of the newlyAlisted shares .lso! the future potential will determine the price impact after the demerger Identi9ying #ene9its The key role for the investor is to identify an entity where the strong or profita"le "usiness remains .nd then! look for the company which has a future potential Trading 1rice

&'

Demerger can lead to some immediate gains for the investors where the price of the separate entities shoots up Too high a rise and one should immediately opt for the sell option It is not uncommon to find valuations touch di//ying heights after a demerger and the "enefits have to "e "ooked In6estor interest There is often a high interest on a particular scrip! immediately after the demerger leading to a shooting up of the scrip Bollowing a thum" rule where the price of the scrip visAaAvis actual valuation gives a fair idea a"out the e5tent of overvaluation or undervaluation taking place

-imitationsF.indrances in t0e Current -egal Pro6isions Relating to Demerger Kuestiona"le reAstructuring e5ercises are undertaken with a view to strip parent companies of vital assets and defeat revenue In the process( the parent compan*+s !usiness is reduced to the minimum and no significant assets are left from ,hich the I%- Department can recover its dues The parent company "ecomes a shell company though styling itself as a holding company >hen the amendments were made! the Central 3overnment was a"le to prescri"e guidelines or conditions so as to ensure that the demergers were made for genuine "usiness purposes Section %@1 of the IAT .ct declares certain transfers to "e void ;ut this applies where such transfers are made during the pendency of any proceeding under the .ct It also does not apply to assets not forming part of the stockAin trade of the "usiness It was not anticipated that the provisions would "e a"used not merely to take advantage of ta5 concessions "ut also to defeat legitimate ta5 revenues

&1

Asset%stripping is a favourite mechanism always used "y errant ta5payers to defeat the 4evenue Such a"uses have! however! not "ecome widespread Proper amendments should "e made to the law to safeguard revenue The definition of demerger in Section % (19..) re+uires fresh look The property and lia"ilities of the undertaking "eing transferred "y the demerged company! as per the definition! will "e transferred at "ook value 7ven a unit or a division or a "usiness activity of an undertaking can "e transferred ,o dou"t! all the property of the undertaking! including lia"ilities relata"le to the undertaking "eing transferred "y the demerged company! shall "ecome the property and lia"ilities of the resulting company ;ut it is necessary to specifically lay down that demergers should not result in defeating the 4evenue "y way of transfer of assets

C0a1ter 8
&:

8 Reasons 9or Amalgamation & De/ +ergers

The key determinants for success in the glo"al market are the a"ility to achieve si/e! scale! integration and greater financial strength and fle5i"ility! in the interests of ma5imi/ing overall shareholder value >hatever is the fundamental o"jective! mergers must form part of the "usiness and corporate strategies aimed at creating sustaina"le competitive advantage for the firm It is "elieved that mergers and amalgamations are strategic decisions leading to the ma5imi/ation of a companyFs growth "y enhancing its production and marketing operations! enhanced competition! "reaking of trade "arriers! free flow of capital! glo"ali/ation of "usiness etc Burther! it has "een stated that mergers and ac+uisitions are intendedM (a) To limit competition! (") To utili/e underAutili/ed market power! &2

(c) To overcome the pro"lem of slow growth and profita"ility in oneFs own Industry! (e) to achieve diversification! (f) To esta"lish a transnational "ridgehead without e5cessive start up costs to gain access to foreign market! (g) To utili/e underAutili/ed resources J human and physical and managerial skills! (h) To displace e5isting management! (i) To circumvent 3overnment regulations! (j) To reap speculative gains attendant upon new security issue or change in P$7 ratio (k) To create an image of aggressiveness and strategic opportunism! empire "uilding and to amass vast economic powers of the company RCourtesy M .nsoff 8 L et .l .c+uisitive ;ehaviour of # S -anufacturing firms 19:'A:1! ?ander"ilt university Press! 1921S Some of the most common reasons and "enefits of mergers and amalgamations includeM (i) maintaining or increasing a companyFs growth especially where internal growth is restricted due to scarcity of resourcesO (ii) increasing or enhancing profita"ility! through cost reduction resulting from economies of scale! operating efficiencies and synergy (iii) diversification of risks (iv) .ccelerating companyFs market power and reducing the severity of competition (v) 4educing ta5 lia"ility Some of the a"ove mentioned reasons and "enefits are discussed "riefly hereunder Im1ro6ing Economies o9 Scale =ne of the most fre+uent reason given for mergers is to improve the economies of scale 7conomies of scale arise when increase in volume of production leads to a reduction in cost of production per unit They are generally associated with the manufacturing operations! so that the ratio of output to input improves with the volume of operations -ergers and amalgamations help to e5pand the volume of production without a corresponding increase in fi5ed costs Thus! the fi5ed costs are distri"uted over a large volume causing the unit cost of production to decline 7conomies of scale may also "e o"tained from the optimum utili/ation of management resources and systems of planning! "udgeting! reporting and control . com"ined firm with a large si/e can make the optimum use of the management resources and systems resulting in economies of &@

scale This gives the company a competitive advantage "y gaining an a"ility to reduce the prices to increase market share! or earn higher profits while maintaining a price O1erating Economics .part from economies of scale! a com"ination of two or more firms may result in reduction of costs due to operating economies . com"ined firm may avoid overlapping of function and facilities ?arious functions may "e consolidated and duplicate channels may "e eliminated "y implementing an integrated planning and control system The merger of Sundaram Clayton Ltd (SCL) with T?S Su/uki Ltd (TSL) was motivated "y operating economies and "y virtue of this! TSL "ecame the second largest producer of two wheelers TSL needed to increase its volume of production "ut also needed a large manufacturing "ase to reduce its production costs Large amount of funds would have "een re+uired for creating additional production capacity SCL was also re+uired to upgrade its technology and increase its production ;oth the firmsF plants were closely located offering various advantages! the most versatile "eing the capa"ility to share common 4 G D facilities +ar?et -eaders0i1 Some of the mergers and amalgamations take place with a view to seek additional strength in the market The amalgamation can enhance value for shareholders of "oth companies through the amalgamated entityFs access to greater num"er of market resources >ith the additional com"ined market share! a company can afford to control the price in a "etter manner with a conse+uent increase in profita"ility The "argaining power of the firm visAUAvis la"our! suppliers and "uyers is also enhanced The merged firm can also e5port technological "reakthrough against o"solescence and price wars In the case of the amalgamation of 4eliance Petroleum Limited with 4eliance Industries Limited! the main consideration had "een that the amalgamation will contri"ute towards strengthening 4elianceFs e5isting market leadership in all its major products It was foreseen that the amalgamated entity will "e a major player in the energy and petrochemical sector! "ringing together 4elianceFs leading positions in different product categories

Financial ,ene9its

&9

. merger or amalgamation is capa"le of offering various financial synergies and "enefits such as eliminating financial constraints! deployment of surplus cash! enhancing de"t capacity and lowering the cost of financing -ergers and amalgamations ena"le e5ternal growth "y e5change of shares releasing there"y! the financial constraint .lso! sometime cash rich companies may not have enough internal opportunities to invest surplus cash Their wealth may increase through an increase in the market value of their shares if surplus cash is used to ac+uire another company . merger can "ring sta"ility of cash flows of the com"ined company! enhance the capacity of the new entity to service a larger amount of de"t! allowing a higher interest ta5 shield there"y adding to the shareholders wealth .lso! in a merger since the pro"a"ility of insolvency is reduced due to financial sta"ility! the merged firm should "e a"le to "orrow at a lower rate of interest .part from this! a merged firm is a"le to reali/e economies of scale in floatation and transaction costs related to an issue of capital i e issue costs are saved when the merged firm makes a larger security issue Ac@uiring a Ne; Product or ,rand Name . company! for strategic reasons! may wish to produce or market a particular product! "ut may not have the re+uired production! marketing or managerial facilities for completing a product line or for meeting all the needs of a customer segment 3etting the re+uired knowAhow from others sources installing and commissioning a plant and then launching the new product may take much time and result in loss of advantages for getting into the associated "usiness Instead! amalgamation would provide readymade facilities! which would provide a +uicker entry for encashing the comparative advantage of the new product "efore new entrants make the market much more competitive and much less profita"le Di6ersi9ying t0e Port9olio .nother reason for merger is to diversity the companyFs dependence on num"er segments of the economy Diversification implies growth through the com"ination of firms in unrelated "usinesses .ll "usinesses go through cycles and if the fortunes of a company were linked to only one or a few products then in the decline stage of their product life cycles! the company would find it difficult to sustain itself The company therefore looks for either related or unrelated diversifications and may decide to do so not internally "y setting up new projects! "ut e5ternally "y merging with companies of the desired product profile Such diversification helps

'6

to widen the growth opportunities for the company and smoothen the ups and downs of their life cycles Synergies Synergy refers to a situation where the com"ined firm is more valua"le than the sum of individual com"ining firms (%V%W1) The com"ination of operations can create a uni+ue level of integration for the amalgamated entity spanning the entire value chain in the line of "usiness This will ena"le the amalgamated entity to achieve su"stantial savings in costs! significantly enhancing its earnings potential Synergies can "e e5pected to flow from more focused operational efforts! rationali/ation! standardi/ation and simplification of "usiness processes! productivity improvements! improved procurement! and the elimination of duplication TaIation or In6estment Incenti6es . company! which has incurred losses in the past! can carry such losses forward and offset them against future ta5a"le profits and reduce ta5 lia"ilities Such a company when merged with a company with large ta5a"le profits would help to a"sor" the ta5 lia"ility of the latter . similar advantage e5ists when a company is moderni/ing or investing heavily in plant and machinery! which entitles it to su"stantial investment incentives! "ut has not much ta5a"le profits to offset them with .c+uiring or merging such a company with a highly profita"le company would help make full use of the investment incentives for the latter Survey findings In the early seventies! the =rgani/ation for 7conomic Cooperation and Development (=7CD) pu"lished a 4eport of their Committee of 75perts on 4estrictive ;usiness Practices! on T-ergers and Competition PolicyF The report listed twelve motives most often cited for mergers! which may "e grouped together under the following categoriesM . 7conomies of Scale 1 ="tain 4eal 7conomies of Scale 4elated 4easons % .c+uire Capacity at 4educed Prices ; -arket share 4easons & Increase market power ' 75pand production without price reduction 1 ;uild an empire : 4ationali/e production '1

C Binancial Synergy 2 ="tain Ta5 advantages 4elated 4easons @ ="tain monetary economies of scale 9 #se complementary resources 16 3ain promotional profits D Diversification of 4isk 11 Spread risks "y diversification 4elated 4easons 1% .void firmFs failure

The key determinants for success in the glo"al market are the a"ility to achieve si/e! scale! integration and greater financial strength and fle5i"ility! in the interests of ma5imi/ing overall shareholder value >hatever is the fundamental o"jective! mergers must form part of the "usiness and corporate strategies aimed at creating sustaina"le competitive advantage for the firm It is "elieved that mergers and amalgamations are strategic decisions leading to the ma5imi/ation of a companyFs growth "y enhancing its production and marketing operations! enhanced competition! "reaking of trade "arriers! free flow of capital! glo"ali/ation of "usiness etc Burther! it has "een stated that mergers and ac+uisitions are intendedM (a) To limit competition! (") To utili/e underAutili/ed market power! (c) To overcome the pro"lem of slow growth and profita"ility in oneFs own Industry! (e) to achieve diversification! (f) To esta"lish a transnational "ridgehead without e5cessive start up costs to gain access to foreign market! (g) To utili/e underAutili/ed resources J human and physical and managerial skills! (h) To displace e5isting management! (i) To circumvent 3overnment regulations! (j) To reap speculative gains attendant upon new security issue or change in P$7 ratio (k) To create an image of aggressiveness and strategic opportunism! empire "uilding and to amass vast economic powers of the company '%

RCourtesy M .nsoff 8 L et .l .c+uisitive ;ehaviour of # S -anufacturing firms 19:'A:1! ?ander"ilt university Press! 1921S Some of the most common reasons and "enefits of mergers and amalgamations includeM (i) maintaining or increasing a companyFs growth especially where internal growth is restricted due to scarcity of resourcesO (ii) increasing or enhancing profita"ility! through cost reduction resulting from 7conomies of scale! operating efficiencies and synergy (iii) Diversification of risks (iv) .ccelerating companyFs market power and reducing the severity of competition (v) 4educing ta5 lia"ility Some of the a"ove mentioned reasons and "enefits are discussed "riefly hereunder Im1ro6ing Economies o9 Scale =ne of the most fre+uent reason given for mergers is to improve the economies of scale 7conomies of scale arise when increase in volume of production leads to a reduction in cost of production per unit They are generally associated with the manufacturing operations! so that the ratio of output to input improves with the volume of operations -ergers and amalgamations help to e5pand the volume of production without a corresponding increase in fi5ed costs Thus! the fi5ed costs are distri"uted over a large volume causing the unit cost of production to decline 7conomies of scale may also "e o"tained from the optimum utili/ation of management resources and systems of planning! "udgeting! reporting and control . com"ined firm with a large si/e can make the optimum use of the management resources and systems resulting in economies of scale This gives the company a competitive advantage "y gaining an a"ility to reduce the prices to increase market share! or earn higher profits while maintaining a price O1erating Economics .part from economies of scale! a com"ination of two or more firms may result in reduction of costs due to operating economies . com"ined firm may avoid overlapping of function and facilities ?arious functions may "e consolidated and duplicate channels may "e eliminated "y implementing an integrated planning and control system The merger of Sundaram Clayton Ltd (SCL) with T?S Su/uki Ltd (TSL) was motivated "y operating economies and "y virtue of this! TSL "ecame the second largest producer of two wheelers TSL needed to increase its volume of production "ut also needed a large manufacturing "ase to reduce its production costs Large '&

amount of funds would have "een re+uired for creating additional production capacity SCL was also re+uired to upgrade its technology and increase its production ;oth the firmsF plants were closely located offering various advantages! the most versatile "eing the capa"ility to share common 4 G D facilities +ar?et -eaders0i1 Some of the mergers and amalgamations take place with a view to seek additional strength in the market The amalgamation can enhance value for shareholders of "oth companies through the amalgamated entityFs access to greater num"er of market resources >ith the additional com"ined market share! a company can afford to control the price in a "etter manner with a conse+uent increase in profita"ility The "argaining power of the firm visAUAvis la"our! suppliers and "uyers is also enhanced The merged firm can also e5port technological "reakthrough against o"solescence and price wars In the case of the amalgamation of 4eliance Petroleum Limited with 4eliance Industries Limited! the main consideration had "een that the amalgamation will contri"ute towards strengthening 4elianceFs e5isting market leadership in all its major products It was foreseen that the amalgamated entity will "e a major player in the energy and petrochemical sector! "ringing together 4elianceFs leading positions in different product categories

Financial ,ene9its . merger or amalgamation is capa"le of offering various financial synergies and "enefits such as eliminating financial constraints! deployment of surplus cash! enhancing de"t capacity and lowering the cost of financing -ergers and amalgamations ena"le e5ternal growth "y e5change of shares releasing there"y! the financial constraint .lso! sometime cash rich companies may not have enough internal opportunities to invest surplus cash Their wealth may increase through an increase in the market value of their shares if surplus cash is used to ac+uire another company . merger can "ring sta"ility of cash flows of the com"ined company! enhance the capacity of the new entity to service a larger amount of de"t! allowing a higher interest ta5 shield there"y adding to the shareholders wealth .lso! in a merger since the pro"a"ility of insolvency is reduced due to financial sta"ility! the merged firm should "e a"le to "orrow at a lower rate of interest .part from this! a merged firm is a"le to ''

reali/e economies of scale in floatation and transaction costs related to an issue of capital i e issue costs are saved when the merged firm makes a larger security issue Ac@uiring a Ne; Product or ,rand Name . company! for strategic reasons! may wish to produce or market a particular product! "ut may not have the re+uired production! marketing or managerial facilities for completing a product line or for meeting all the needs of a customer segment 3etting the re+uired knowAhow from others sources installing and commissioning a plant and then launching the new product may take much time and result in loss of advantages for getting into the associated "usiness Instead! amalgamation would provide readymade facilities! which would provide a +uicker entry for encashing the comparative advantage of the new product "efore new entrants make the market much more competitive and much less profita"le Di6ersi9ying t0e Port9olio .nother reason for merger is to diversity the companyFs dependence on a num"er segments of the economy Diversification implies growth through the com"ination of firms in unrelated "usinesses .ll "usinesses go through cycles and if the fortunes of a company were linked to only one or a few products then in the decline stage of their product life cycles! the company would find it difficult to sustain itself The company therefore looks for either related or unrelated diversifications and may decide to do so not internally "y setting up new projects! "ut e5ternally "y merging with companies of the desired product profile Such diversification helps to widen the growth opportunities for the company and smoothen the ups and downs of their life cycles Synergies Synergy refers to a situation where the com"ined firm is more valua"le than the sum of individual com"ining firms (%V%W1) The com"ination of operations can create a uni+ue level of integration for the amalgamated entity spanning the entire value chain in the line of "usiness This will ena"le the amalgamated entity to achieve su"stantial savings in costs! significantly enhancing its earnings potential Synergies can "e e5pected to flow from more focused operational efforts! rationali/ation! standardi/ation and simplification of "usiness processes! productivity improvements! improved procurement! and the elimination of duplication TaIation or In6estment Incenti6es

'1

. company! which has incurred losses in the past! can carry such losses forward and offset them against future ta5a"le profits and reduce ta5 lia"ilities Such a company when merged with a company with large ta5a"le profits would help to a"sor" the ta5 lia"ility of the latter . similar advantage e5ists when a company is moderni/ing or investing heavily in plant and machinery! which entitles it to su"stantial investment incentives! "ut has not much ta5a"le profits to offset them with .c+uiring or merging such a company with a highly profita"le company would help make full use of the investment incentives for the latter Survey findings In the early seventies! the =rgani/ation for 7conomic Cooperation and Development (=7CD) pu"lished a 4eport of their Committee of 75perts on 4estrictive ;usiness Practices! on T-ergers and Competition PolicyF The report listed twelve motives most often cited for mergers! which may "e grouped together under the following categoriesM . 7conomies of Scale 1 ="tain 4eal 7conomies of Scale 4elated 4easons % .c+uire Capacity at 4educed Prices ; -arket share 4easons & Increase market power ' 75pand production without price reduction 1 ;uild an empire : 4ationali/e production C Binancial Synergy 2 ="tain Ta5 advantages 4elated 4easons @ ="tain monetary economies of scale 9 #se complementary resources 16 3ain promotional profits D Diversification of 4isk 11 Spread risks "y diversification 4elated 4easons 1% .void firmFs failure

':

C0a1ter :
'2

: TaI Im1lications on Demergers & -egal As1ect

3enerally! the gains arising from a demerger are e5empt from capital gains ta5! while those arising from a slump sale are not ;ut! then! what e5actly is a TdemergerF for the purposes of the e5emption from capital gains ta5X Can a demerger ever "e characteri/ed as a Tslump saleFX Several sections of the Income Ta5 .ct! 19:1 deal with these issues

The statutory provisions in the Income Ta5 .ctM

. Section %(19..) says that a TdemergerF means a transfer pursuant to a scheme under Sections &91A&9' of the Companies .ct! 191: ("y a demerged company of its one or more undertakings to any resulting company) such that a list of seven conditions enumerated in separate clauses is fulfilled Clause RivS is particularly relevant for the present discussion It says '@

that the resulting company must issue! in consideration of the demerger! its shares to the shareholders of the demerged company on a proportionate "asis ; . slump sale is defined in $ection 2&#2.' to mean the transfer of one or more undertakings as a result of the sale for a lumpAsum consideration without values "eing assigned to independent assets and lia"ilities C .ccording to $ection #/! any profits or gains arising from the transfer of a capital asset are chargea"le to capital gains ta5 D #nder $ection #0&vii'! the provisions of Section '1 do not apply to a transfer in a demerger of a capital asset "y the demerged company to a resulting company if the resulting company is an Indian company 7 #nder $ection /1%2! capital gains arising from slump sales are chargea"le to ta5 The capital gains from such slum sales are to "e calculated "y su"tracting the net worth of the undertaking that is transferred from the lumpAsum consideration (as per 75planations 1 and % to the Section) In short! if a transfer is a demerger under the Income Ta5 .ct! capital gains lia"ility would not arise If it is a slump sale! such lia"ility would arise Bor the transfer to "e a TdemergerF! the conditions mentioned in Section %(19..) must "e complied with ;ut what happens when one or more of the conditions are irrelevant to a particular transactionX 8ow this may happen is e5emplified "y the facts of the comple5 case of .vaya 3lo"al Connect v .CIT! IT. ,o @&%$-um$62

The BactsM The assessee T.F was a company having two divisions J T;F and TTF TTF was transferred "y T.F to TIF! an Indian company Bor this transfer! a scheme of arrangement filed "efore the ;om"ay 8igh Court provided! P3 4-5 ,ithout an* further act( instrument or deed3 shall stand vested in or deemed to !e vested in 4I5 as a going concern36 $ignificantl*( the scheme ,ent on '9

to sa* 78pon the demerger of 4-5 into 4I5( 4I5 ,ould not pa* consideration either to 4A5 or to the shareholders of 4A53Q (7mphasis supplied ) The ;om"ay 8igh Court sanctioned this scheme The value of the assets taken over "y TIF was less than the value of the lia"ilitiesO and T.F showed the difference in the capital reserve account in the "alance sheet . +uestion arose as to whether the gains which accrued to the assessee (as it had transferred more lia"ilities than assets) would "e chargea"le to capital gains The claimsM The Department took the view that the scheme would not +ualify as a demergerO on the "asis that clause RivS mentioned a"ove was not satisfied The assessee contended that clause RivS was inapplica"le to the case! as the clause would have effect only when there was some consideration for the transfer In the case! the value of its lia"ilities e5ceeded its assets! leading to negative net worth Therefore! there was no consideration for the transfer J as a practical matter! it was impossi"le for there to "e any consideration .s there was no consideration whatsoever! the +uestion of complying with clause RivS would not arise >ithout prejudice! it was argued "y the assessee that the transfer could not have "een a slump sale given that no lumpAsum consideration was paid Burther! it was contended that there "eing no sale consideration received in respect of the transfer! no +uestion of computing capital gains arose The .= and the CIT (.ppeals) however rejected these contentions It was held that the transaction ,as a slump sale The assessee had not received consideration as suchO yet it had transferred lia"ilities in e5cess of assets and had credited the difference to its capital reserve account This was sufficient to constitute consideration received on account of the transferO and the assessee was lia"le to pay capital gains ta5

The issues "efore the Tri"unalM 7ssentially! the Tri"unal faced the following +uestionsM

16

. >as the transfer to "e characteri/ed as a TdemergerF for the purposes of the Income Ta5 .ct! 19:1X ; If not! could it "e referred to as a slump saleX If it was a slump sale! would there "e any capital gain on facts (considering the negative net worth of the assessee and the fact that no actual consideration was received)X C >hat would "e the position if the transfer was categori/ed as neither a demerger nor a slump saleX The decisionM . The Tri"unal agreed with the lower authorities that there was no TdemergerF in the present case It was held that the legislature must "e presumed to have foreseen all practical possi"ilities while adding the conditions The fact that there was no consideration whatsoever (as a matter of practical impossi"ility) would not "e sufficient to hold that the condition was inapplica"le ; The Tri"unal then went on to hold that it is only a transfer as a result of a sale which can "e considered as a slump sale The presence of a money consideration is essential for a sale .lso! when a Court sanctions a scheme under the Companies .ct! the transfer in pursuance of that scheme would "e not "e a result of sale! "ut would "e a result of the operation of law C 7ssentially! the capital asset which was transferred in the case was a going concern It would not "e possi"le to P3 conceptuali9e the cost of acquisition of 3 a going concern &or' the date of acquisition thereof3Q .s such! it was held that the computation provisions of the .ct in Section '@ would fail in the given factual matri5 In such a scenario! no capital gains could "e levied .ccordingly! the assesseeFs appeal was allowed The significanceM

11

Brom the point of view of the corporate world! the judgment serves to highlight an important point -erely "ecause a transfer is carried out in accordance with a scheme for a demerger under the Companies .ct sanctioned "y the competent 8igh Court! the transfer will not "e characteri/ed as a demerger for the purposes of ta5ation .t the same time! such a transfer will not "e a slump saleO and lia"ility to capital gains will depend on whether or not the provisions for computation of capital gains would "e worka"le The safer course! it appears! would "e to ensure that the re+uirements for a demerger under ta5 laws are complied with in the first place

1%

C0a1ter &

&4 Procedure In India

Demerger Process !nder Indian Com1anies ActB 2(8:
Demerger! in relation to companies! means the transfer! pursuant to a scheme of arrangement under Sections &91 to &9' of the Companies .ct! 191:! "y a demerged company of its one or more undertakings to any resulting company in the manner specified in Section %(19..) of the Income Ta5 .ct The provisions of Section &91 of the Companies .ct! 191: are availa"le to protect the interest of shareholders dissenting from the scheme approved "y the majority Section %('%C) of the Income Ta5 .ct! 19:1 and introduced a concept of Pslump saleF Slump sale means the transfer of one or more undertakings as a result of sale fro a lump sum consideration without values "eing assigned to the individual assets and lia"ilities in such sale Therefore! demerger cannot "e accomplished with Tslump salesF since such a sale is only for sale 1&

of undertaking The demerger should "e in accordance with the act "y the Central 3overnment in this "ehalf which envisages the Companies .ct! 191: If the original company which is split into several companies after divisions is wound up voluntarily! the provisions of Sections'@' to '9@ of the Companies act to "e followed

STEPS TO DE+ERGER 3enerally the following steps are adopted in a demerger processM StepA1M Preparation of scheme of demerger StepA%M .pplication to court for direction to hold meeting of the mem"ers$creditor StepA&M ="taining courtFs order for holding meetings of mem"ers$creditors StepA'M ,otice of the meetings of mem"ers$creditors StepA1M 8olding meeting(s) of mem"ers$creditors StepA:M 4eporting the result of the meeting "y the chairman to the court StepA2M Petition to the court for sanctioning the scheme of demerger StepA@M ="tain order of the court sanctioning the scheme StepA9M CourtFs order on petition sanctioning the scheme of demerger ACTICITIES FRO+ ,OARD +EETING FOR APPROCA- OF DE+ERGER SC.E+E TO CO!RT ORDER Y Intimation in Stock 75change of ;oard -eeting date for considering Demerger Y ;oard .pproval for the Scheme Y Informing Stock 75change of ;oardFs decision Y Consent from shareholders to the Scheme for 4esulting held unlisted Companies) Y Biling scheme with the Stock 75changes Y ,=C$ .pproval from Stock 75changes (;S7$,S7) Y Biling of application under section &91(1) with 8igh Court (along with <udgeFs summons! affidavit in support of summons and draft minutes of order) Y Binali/ing the ,otice$75planatory Statement for -eeting of the Shareholders$Secured and unsecured Creditors 1' Companies (in case of Closely

Y 4eceiving authenticated copy of order for holding$ dispensing with the -eeting of Shareholders$ Secured and unsecured Creditors ="taining certified copy of order of 8igh court for court Convened -eeting Y Commencement of Printing of ,otice for court convened meetings Y Completion of dispatch of notices for meeting under #CP Y .dvertisement of notice of meetings Y Biling of ,otice J .dvertisement of meeting with stock 75change(s) Y Biling of advertisement of meeting with court Y Biling of .ffidavit signed "y Chairman of the meeting or other person directed "y the court verifying that the directions regarding the issue of notices and the advertisements have "een duly complied with Y -eeting of Creditors and -em"ers Y 4eporting the decision of the poll to the 8igh Court Y Biling of petition with the Court along with relevant documents Y .dmission of the petition Y -inutes of order "y judge fi5ing the date of hearing of petition and advertisement of notice of hearing Y .dvertising the notice of hearing in news paper Y ="taining certified copy of order on admission of petition Y Biling of copy of petition with anne5ures with 4D $ 4=C through B=4- :1 (eform) Y Biling of affidavit confirming service of notice of petition and pu"lication in newspaper Y %@ Bollow up with 4D$ 4=C Y 4eceipt of letter! +ueries etc ! from 4D and 4=C Y Bollow J up with 4D$4=C$ Legal Counsel to resolve issues! if any Y Initial date of hearing of petition Y .djoined hearing if any Y Biling of amended petition if any Y Binal date of hearing of petition Y ="taining certified copy of order on petition Y Payment of Stamp duty! if re+uired 11

Y Biling of certified order with 4D $ 4=C along with Borm %1

ACTICITIES FRO+ CO!RT ORDER TI-- RECORD DATE Y .cknowledgement of receipt from 4=C and certified true copy of court order to "e filed with the Stock 75change Y ,otice to Stock 75change for 4ecord Date to determine eligi"ility to receive shares of the 4esulting Companies and voluntarily give advertisement of the 4ecord Date in ,ational Dailies ( &6 day notice) Y .greement with CDSL and ,SDL for admitting its securities Y Printing of stationery J .llotment .dvice! Share Certificate! 7nvelopes Y .pplication seeking e5emption for rela5ation of 4ule 19(%)(") from S7;I through the designated Stock 75change Y .pplication to Stock e5change for in J principle approval for listing of shares Y Designated Stock e5change to forward the application to Y S7;I for approval under 4ule 19 (%)(") of SC4. 4ules Y Prepare Information -emorandum (I-) Y Compliance with clause '9 J prere+uisite Bor Listing Y Bile Information -emorandum with ;S7 and ,S7 Y Deep share certificates! covering letter! envelop of the resulting companies ready for over printing Y Deep te5t and stationery ready for intimation of corporate actions for the 4esulting Companies Y Letter relating to cost of .c+uisition to "e sent to Shareholders Y 75 Date for Stock 75change for B G = Y 4ecord Date ACTICITIES FRO+ RECORD DATE TI-- -ISTING Y Procure details of 4egister of -em"ers from 4GT agent as on 4ecord Date

1:

Y Prepare list of eligi"le shareholders of the resulting companies! including details of the shareholding Y 8old ;oard -eeting of 4esulting Companies for allotment of shares Y Bile Borm % with 4=C CO+P-IANCES RE-ATING TO DE/+ERGER Y 4esulting Companies to su"mit the Corporate .ction Y Borms to depositories and pay fee for the same Y =ver Printing of share certificates! cover letter! envelops and Dispatch of Share certificates or demat credit of e+uity shares of the resulting companies Y Dispatching share certificate Y Send intimation to the shareholders of each of the resulting companies regarding the corporate .ction Y .pplication to Stock e5change! attaching dispatch certificate$demat credit certificate and copy of advertisement! for trading permission Y Pu"lication of the .dvertisement (as per Schedule %@ of S7;I DIP 3uidelines) in one 7nglish daily! 8indi Daily and 4egional Daily Y Trading of shares at Stock 75change DOC!+ENTS TO ,E FI-ED A-ONG AIT. CO+PAN* APP-ICATION AIT. T.E .IG. CO!RT .pplication is to "e filed with the 8igh Court where the 4egistered =ffice is situated for directions to convene a meeting for considering the draft Scheme of Demerger or for dispensing with the meeting The following documents are necessary at this stageM Y <udgeFs Summons under =rder CI? read with 4ule :2 (or 4ule 9! 11(") G 19) read with Sections &91 to &9& and &9' of the Companies .ct (to "e filed in Borm ,o && of the Companies (Court) 4ules! 1919) Y .n affidavit in support of summons in Borm ,o &' of the Companies (Court) 4ules! 1919 Y -emorandum and .rticles of .ssociation of the company Y Latest .udited ;alance Sheet Y List of Shareholders (if meetings are to "e dispensed with) 12

Y List of Secured Creditors Y Scheme of Demerger Y Consent affidavits from all shareholders (if meetings areto "e dispensed with) Y Consent letters from secured creditors Y If the company does not have any secured creditor! a certificate to that effect from the statutory auditor must "e o"tained Y ?aluation 4eport regarding share e5change ratio Y 75tract of the ;oard 4esolution approving the draft Scheme of Demerger Y Draft notice of meeting! 75planatory Statement pursuant to Section &9& of the Companies .ct! form of pro5y (In case meetings are convened) C=#4T P4=C7D#47 TI-7 B4.-7M Su"mission of application under section &91 along with affidavit (BA&') in terms of Companies (Court) 4ules! 1919M Y ,otice and the e5planatory statement under section &9& Y ="tain summon for direction in BA&1 in terms of Companies (Court) 4ules! 1919 Y Settlement of notice convening shareholders meeting Y Dispatch of notice to the shareholders Y Pu"lication of notice convening shareholders meeting Y Su"mission of & copies of the pu"lished notice to stock e5change

1@

C0a1ter )

)4 Trends in Amalgamation & demerger

In the recent years India has witnessed tremendous growth in the num"er of mergers! ac+uisitions! and amalgamations The trend is dramatically growing with the increase in cut throat competition and the moreover with the glo"ali/ation of "usiness

19

.t present India has "ecome a major country entering into cross "order transactions with regards to "usiness amalgamations Some of the known e5amples of amalgamation in India are as followM Tata Steel ac+uired #D "ased Corus 3roup at a deal value of #S 0 1% million 7nergy ac+uired ;elgium "ased 8ansen 3roup at #S 0 1:1 million 8PCL targeted Denya Petroleum 4efinery Ltd at #S 0 166 million 4an"a5y La"s at a deal of #S 0 &%' million ac+uired 4omania "ased Terapia S. ?ideocon ac+uired Thomson S. of Brance at a"out #S 0 %96 million 8indalco targeted Canada to ac+uire ,ovelis at #S 0 19@% million Tata Chemicals ac+uired ;ritish salt "ased in #D with a deal of #S 0 1& "illion 4eliance Power and 4eliance ,atural 4esources com"ined their operations at a deal of #S 011 "illion .irtel ac+uired Hain in .frica with an amount of #S 0 16 2 "illion ICICI ;ank ac+uired ;ank of 4ajasthan at a"out 4s &666 Crore Bortis 8ealthcare ac+uired 8ong Dong*s Kuality 8ealthcare .sia Ltd for around 4s @@% Crore >ipro "ought #S "ased InfoCrossing at #S 0 :66 million 3TL Infrastructure ac+uired .ircel Towers at #S 0 1 @ "illion Su/lon

Com1any Amalgamation in India 4Name of the Company A.T.E. trading & Manufacturing Co. Ltd. Ador Technopack Ltd
Aka"h #ou"ing Ltd. Alcheme 'rganic" Ltd. Allied )e"in" & Chemical" Limited Reasons Amalgamation with Motex Engineering Co. Pvt. Ltd. Amalgamation with J. . Advani & Compan! Pvt. Ltd. Amalgamation with $i%a! &hanthi uilder" Ltd. Amalgamation with Aarti (ndu"trie" Ltd. Amalgamation with A)CL 'rganic" Limited *an unli"ted Compan!+

:6

Alpha ,rug (ndia Ltd. Am-u%a Cement Ea"tern Ltd. Am-u%a Cement )a%a"than Ltd. Am-u%a &hip!ard & &oftware Ltd. American )emedie" Ltd. Amrapali ,eveloper" *(ndia+ Limited Andhra $alle! Power &uppl! Co. Ltd. Anmol ,air! Ltd. Annapurna 0oil" Ltd. AP) Ltd. Ari"tocrat Luggage Limited Arlem rewerie" Ltd. Arrow 1e-tex Ltd Arvind Pol!cot Limited Ar!an Pe"ticide" Ltd. A"him (nve"tment Co. Ltd. A"hok Le!land 0inance Ltd. A"hok Le!land 0inance Ltd. A"ian Coffee Ltd. A3tec"oft Limited a%a% #indu"than &ugar & (ndu"trie" Limited ala%i ,i"tillerie" Limited * ,L+ ank of Madura Ltd. ank of Pun%a- Ltd. ank of )a%a"than Limited an"wara Textile" Mill" Ltd. a!er Crop"cience Ltd. harat &tarch (ndu"trie" Ltd. irla Centur! 0inance Ltd. irla .lo-al 0inance Ltd i"hnauth Tea Ltd. low Pla"t Ltd om-a! ,rug" and Pharma" Ltd. om-a! Paint" Limited ongaigaon )efiner! & Petrochemical" Limited ra-ourne Enterpri"e" Limited rite Automotive and Pla"tic" Ltd. urrough" 1ellcome *(ndia+ Ltd. Ca"il #ealth Product" Ltd. Cauver! &ugar" and Chemical" Ltd. Cee%a! 0inance Ltd.

Amalgamation with Pun%a- Chemical" & Crop Protection Ltd. Amalgamation with .u%arat Am-u%a Cement Ltd. Amalgamation with .u%arat Am-u%a Cement Ltd. Amalgamation with .alax! Appliance" Ltd. Amalgamation with ,r. )edd!/" La-oratorie" Ltd. Amalgamation with Amrapali (ndu"trie" Limited Amalgamation with Tata Power Co. Ltd. Amalgamation with ,air! ,en Ltd. Amalgamation with (ndian Aluminium Compan! Ltd. Amalgamation with allarpur (ndu"trie" Ltd. Amalgamation with $(P (ndu"trie" Limited Amalgamation with Auranga-ad rewerie" Ltd. Amalgamation with Creole #olding" Compan! Private Ltd Amalgamation with Arvind Product" Ltd. Amalgamation with ,eepak 2itrite Ltd. Amalgamation with engal & A""am Compan! Ltd. Amalgamation with (ndu"(nd ank Ltd. Amalgamation with (ndu"(nd ank Ltd. Amalgamation with Con"olidated Coffee Ltd. Amalgamation with Mindtree Limited Amalgamation with a%a% #indu"than Limited Merger of the rewer! ,ivi"ion into Chennai rewerie" Pvt. Ltd. and merger of re"idual ,L *,i"tiller! ,ivi"ion+ with 4nited &pirit" Limited. Amalgamation with (C(C( ank Ltd. Amalgamation with Centurion ank Ltd. Amalgamation with (C(C( ank Limited Amalgamation with an"wara &!ntex Ltd. Amalgamation with a!er *(ndia+ Ltd. Amalgamation with Engli"h (ndian Cla!" Ltd. Amalgamation with 5e"oram (ndu"trie" Ltd. Amalgamation with Adit!a irla 2uvo Ltd Amalgamation with Everead! (ndu"trie" (ndia Ltd. Amalgamation with $.(.P (ndu"trie" Ltd Amalgamation with &tride" Arcola- Ltd. Amalgamation with .rauer & 1eil *(ndia+ Limited Amalgamation with (ndian 'il Corporation Limited Amalgamation with )P. (tochu 0inance Limited Amalgamation with right rother" Ltd. Amalgamation with .laxo&mithkline Pharmaceutical" Ltd. Amalgamation with .envi"ta Pharmaceutical" Pvt. Ltd. Amalgamation with E(, Parr! Ltd. Amalgamation with #eritage Packaging Ltd.

:1

Central (ndia Pol!e"ter" Ltd Centurion ank of Pun%a- Limited Charminar rewerie" Ltd. Cheminor ,rug" Ltd. C#( (nve"tment" Limited Chicago Pneumatic Ltd. Ci-a (ndia Limited Clariant *(ndia+ Ltd. CLC .lo-al Ltd. Coa"tal Paper" Ltd. Cochin )efinerie" almer Lawrie Ltd. Compulink &!"tem" Limited Con"ortium 0inance Ltd. C!namid Agro Ltd. ,aurala 'rganic" Ltd. ,awn Mill" Compan! Ltd ,el"tar Commercial & 0inance Ltd. ,olphin La-oratorie" Limited Elgi 0inance Limited Elgi )u--er Compan! Limited ETC 2etwork" Limited ETC 2etwork" Limited ETC 2etwork" Ltd. *old "crip code+ 0AL (ndu"trie" Ltd 0C.L (ndu"trie" Ltd 0CL Technologie" & Product" Ltd 0em Care Pharma Limited 0icom 'rganic" Ltd 0ine ,rug" and Chemical" Ltd. 0lex Engineering Ltd 0loatgla"" (ndia Ltd. .erman )emedie" Ltd. .e"tetner *(ndia+ Ltd. .(& Ltd. .lo-al tru"t ank Ltd. .lofame Cot"pin (ndu"trie" Ltd. .raphite (ndia Ltd. .ra-al Alok (mpex Limited .rowmore &olvent Ltd. .u%arat Pro%ect & Profin" Ltd. .u%arat Propack Ltd. .ulf 'il (ndia Ltd.

Amalgamation with (ndian Petrochemical" Corporation Ltd Amalgamation with #,0C ank Limited Amalgamation with &kol rewerie" Ltd. Amalgamation with ,r. )edd!/" La-oratorie" Ltd. Amalgamation with )P. (tochu 0inance Limited Amalgamation with Atla" Copco (ndia Ltd. Amalgamation with A&0 (ndia Limited Amalgamation with Colour 6 Chem Ltd. Amalgamation with &pentex (ndu"trie" Ltd. Amalgamation with Andhra Prade"h Paper Mill" Ltd. Amalgamation with 5ochi )efinerie" Ltd. Amalgamation with .lod!ne Techno"erve Limited Amalgamation with Magma Lea"ing Ltd. Amalgamation with A&0 (ndia Ltd. Amalgamation with ,CM &hriram (ndu"trie" Ltd. Amalgamation with Penin"ula Land Ltd. Amalgamation with $ick! (nve"tment" Ltd. Amalgamation with (nta" Pharmaceutical" Ltd. Amalgamation with Elgi E7uipment" Limited Amalgamation with Elgi )u--er (nternational Limited Amalgamation with 8ee (nteractive Learning &!"tem" Limited Amalgamation with 8ee Entertainment Enterpri"e" Limited Amalgamation with Econnect (ndia Ltd. *4nli"ted Compan!+ Amalgamation with 0or-e" .okak Ltd. Amalgamation with .u%arat 2)E Coke Ltd. Amalgamation with 0lex (ndu"trie" Ltd Amalgamation with ,a-ur (ndia Limited Amalgamation with Coromandel 0ertili"er" Ltd. Amalgamation with Matrix La-oratorie" Ltd. Amalgamation with 0lex (ndu"trie" Ltd Amalgamation with A"ahi (ndia .la"" Ltd. Amalgamation with Cadila #ealthcare Ltd. Amalgamation with )icoh (ndia Ltd. Amalgamation with .illander" Ar-uthnot & Co. Ltd. Amalgamation with 'riental ank of Commerce Ltd. Amalgamation with 1el"pun (ndia Ltd. Amalgamation with Car-on Everflow Ltd. Amalgamation with Alok (ndu"trie" Limited Amalgamation with 5engold *(ndia Ltd.+ Amalgamation with .alax! Appliance" Ltd. Amalgamation with Co"mo 0ilm" Ltd. Amalgamation with (,L (ndu"trie" Ltd.

:%

.ul"han &ugar" & Chemical" Ltd. #arle!"treet Pharmaceutical" Limited #ar!ana rewerie" Ltd. #enkel &P(C (ndia Ltd. #er-ert"on" Ltd #ind Lever Chemical" Ltd. #indoo"tan &pinning & 1eaving Mill" Limited #itech ,rilling &ervice" Ltd. #!dera-ad 0lextech Limited ( C ( C ( Ltd. ( (ndu"trie" Ltd. ( P Compan! Ltd (, ( ank Ltd. (nda-rator Ltd. (ndia 0oil" Limited (ndia Pol!fi-re" Ltd (ndia &team"hip Compan! Ltd. (ndian Charge Chrome Ltd (ndian Petrochemical" Corporation Ltd. (ndian )e"ort #otel" Ltd (ndian &eamle"" & &teel" Ltd. (ndian &eamle"" 0inancial &ervice" Ltd (ndian &eamle"" Metal Tu-e" Ltd. (ndian &eamle"" Metal Tu-e" Ltd. (ndo A"ian 0u"egear Ltd. (ndo 0logate" Ltd. (ndo .ulf Corporation Ltd. (ndo .ulf 0ertili"er" Ltd. (ndo )ama Textile" Ltd (ndu"6e6&olution" Ltd. (nternational e"t 0ood" Ltd. (ntron Ltd. (TC hadrachalam Paper-oard" Ltd. (TC #otel" Ltd. J.J. &pectrum &ilk Ltd. Jahanri trade" and 0inance Ltd. Jai Para-olic &pring" Limited Jai Praka"h (ndu"trie" Ltd. Jaipur Pol!"pin Ltd. Jindal (ron & &teel Compan! Ltd. Jupiter iotech Ltd.

Amalgamation with .ul"han Pol!ol" Ltd. Amalgamation with Maker" La-oratorie" Limited Amalgamation with &kol rewerie" Ltd. Amalgamation with #enkel (ndia Ltd. Amalgamation with Mc,owell & Compan! Ltd Amalgamation with Tata Chemical" Ltd. Amalgamation with &irdar Car-onic .a" Limited Amalgamation with A-an Lo!d Chile" 'ff"hore Ltd. Amalgamation with 5eerthi (ndu"trie" Limited Amalgamation with ( C ( C ( ank Ltd. Amalgamation with 2.). (nternational Ltd. Amalgamation with (ndian 'il Corporation Ltd. Amalgamation with (ndu"trial ,evelopment ank of (ndia Ltd. Amalgamation with 2e"co Ltd. Amalgamation with E"" ,ee Aluminium Limited Amalgamation with (ndian Petrochemical" Corporation Ltd Amalgamation with Cham-al 0ertili"er" and Chemical" Ltd. Amalgamation with (ndian Metal" & 0erro Allo!" Ltd Amalgamation with )eliance (ndu"trie" Ltd. Amalgamation with (ndian #otel" Compan! Ltd Amalgamation with Je%uri &teel" and Allo!" Ltd. Amalgamation with (ndian &eamle"" &ecuritie" Ltd. Amalgamation with 5al!ani &eamle"" Tu-e" Ltd. Amalgamation with (ndian &eamle"" &teel" & Allo!" Ltd. Amalgamation with (ndo 5opp Ltd. *unli"ted compan!+ Amalgamation with (0.L )efractorie" Ltd. Amalgamation with #indalco (ndu"trie" Ltd Amalgamation with Adit!a irla 2uvo Ltd. Amalgamation with &pentex (ndu"trie" Ltd Amalgamaiton with Mega"oft Ltd. Amalgamation with #indu"tan Lever Ltd. Amalgamation with Electrolux 5elvinator Ltd. Amalgamation with (TC Ltd. Amalgamation with (TC Ltd. Amalgamation with J.J. Exporter" Ltd. Amalgamation with Amrit Petroleum" Pvt. Ltd. Amalgamation with Jamna Auto (ndu"trie" Limited Amalgamation with Jaipraka"h A""ociate" Ltd. *unli"ted compan!+ Amalgamation with )a%a"than &pinning & 1eaving Mill" Ltd. Amalgamation with Jindal $i%a!nagar &teel Ltd. Amalgamation with .u%arat Am-u%a Export" Ltd.

:&

5anthal (ndia Ltd. 5a"low trade" and 0inance Ltd. 5a"turi 0inlea"e & (nve"tment Ltd. 5#&L (ndu"trie" Ltd. 5inetic Capital 0inance Ltd. 5irlo"kar Pneumatic Co. Ltd. 5ochi )efinerie" Ltd 5o%am 0ininve"t Ltd. Lak"hmi Auto Component" Ltd. Lupin La-oratorie" Ltd. M. J. Pharmaceutical" Ltd. Mac Agro (ndu"trie" Ltd. Mahara"htra Elektro"melt Limited Mala-ar uilding Product" Ltd. Mandovi Pellet" Ltd. Mawana &ugar" Ltd. Ma!ar 0inance Ltd. Mc,owell and Co. Ltd. Medicorp Technologie" (ndia Ltd. Metrochem (ndu"trie" Limited Mida" Pharma"ec Limited Mile"tone 'rganic Limited Millennium eer (ndu"trie" Limited Mountevere"t trading & (nve"tment Limited 2ahar (nternational Ltd. 2ahar &ugar & Allied Ltd. 2armada Chematur Petrochemical" Ltd. 2CL &eccolar Ltd. 2edungadi ank Ltd. 2etflier 0inco Ltd. 'ctav (nve"tment" Limited 'di""i &ecuritie" Ltd. 'nida &avak Ltd. 'rient (nformation Technolog! Limited Pampa"ar ,i"tiller! Ltd. Pari%at trading Limited Parke ,avi" (ndia Ltd. Patel 'n6 oard Courier" Ltd Pau"hak Ltd. Penta"oft Technologie" Limited Pharmacia #ealthcare Ltd.

Amalgamation with &andvik A"ia Ltd. Amalgamation with &agar &ilk (ndu"trie" Ltd. Amalgamation with A%anta &o!a Ltd. Amalgamation with 5haitan 'ver"ea" and 0inance Ltd. Amalgamation with 5inetic 0incap Ltd. Amalgamation with 5... 5ho"la Compre""or" Ltd. Amalgamation with harat Petroleum Corporation Ltd Amalgamation with .u%arat .la"" Ltd. Amalgamation with T$& Motor Compan! Ltd. Amalgamation with Lupin Chemical" Ltd. Amalgamation with &un Pharmaceutical" (ndu"trie" Ltd. Amalgamation with &outh (ndia Corp. Ltd. Amalgamation with &teel Authorit! of (ndia Limited Amalgamation with #!dera-ad (ndu"trie" Ltd. Amalgamation with Chowgule and Compan! Ltd. *4nli"ted Compan!+ Amalgamation with &iel Ltd. Amalgamation with Ma!ar (ndia Ltd. Amalgamation with Mc,owell &pirit" Ltd. Amalgamation with Matrix La-oratorie" Ltd. Amalgamation with .lo-al oard" Limited *new name Metroglo-al Limited+ Amalgamation with 0ervent Pharma &!nergie" Limited *an unli"ted Compan!+ Amalgamation with odal Chemical" Limited Amalgamation with 4nited rewerie" Limited. Amalgamation with Monnet ("pat Limited Amalgamation with 2ahar (ndu"trial Enterpri"e" Ltd. Amalgamation with 2ahar (ndu"trial Enterpri"e" Ltd. Amalgamation with .u%arat 2armada $alle! 0ertili3er" Ltd. Amalgamation with Alltek Coating Product" Ltd. Amalgamation with Pun%a- 2ational ank Ltd. Amalgamation with engal & A""am Compan! Ltd. Amalgamation with )P. (tochu 0inance Limited Amalgamation with Textile"pace Technologie" Ltd. Amalgamation with M()C Electronic" Ltd. Amalgamation with (T People *(ndia+ Limited Amalgamation with Mahara"htra ,i"tillerie" Ltd. Amalgamation with Multila!er 0ilm" Pvt. Limited Amalgamation with Pfi3er Ltd. Amalgamation with Patel )oadwa!" Ltd Amalgamation with ,ar"hak Ltd. Amalgamation with Pentamedia .raphic" Limited Amalgamation with Pfi3er Ltd.

:'

Philip" .la"" (ndia Ltd. Pix Auto" Ltd. Plama La-oratorie" Ltd. Polar 0an (ndu"trie" Ltd. Pradeep ,rug Compan! Ltd. Pun%a- Anand Lamp (ndu"trie" Ltd. Pun%a- Power .eneration Machine Ltd. Pun%a- tractor" Limited Purva Engineer" Ltd. )adico 5haitan Ltd. )ain Clacining Ltd. )a%a"than Tool" Ltd. )a%doot Paint" Ltd. )a%"hri 0orex Ltd. )ane rake Lining" Limited )ane Engine $alve" Limited )ecron &!nthetic" Ltd )eliance Capital $enture" Ltd )eliance Energ! $enture" Ltd )eliance Petroleum Limited )eliance Petroleum Ltd. )eligare Technova .lo-al &olution" Limited )hone6Poulence *(ndia+ Ltd. )ico Agroil" Ltd. )P. Ca-le" Limited )&L (ndu"trie" Ltd. &ai (nfo &ervice" Ltd. &al3er Control" Ltd. &al3er Textile" Ltd. &amruddhi Cement Limited &hapre .lo-al (nfo &ervice" Ltd. &haw 1allace & Co. Limited &hrachi &ecuritie" Ltd &hree )a%a"than Texchem Ltd &hree $aani &ugar" & (ndu"trie" Limited &hri )amrupai ala%i &teel" Ltd &hriram (nve"tment" Ltd. &hriram 'ver"ea" 0inance Ltd &ica rewerie" Ltd. &iemen" #ealthcare ,iagno"tic" Limited &iemen" $,' Automotive Ltd.

Amalgamation with Philip" (ndia Ltd. Amalgamation with Pix tran"mi""ion Ltd. Amalgamation with &tride" Arcola- Ltd. Amalgamation with Polar (ndu"trie" Ltd. Amalgamation with &un Pharmaceutical (ndu"trie" Ltd. Amalgamation with Philip" (ndia Amalgamation with Crompton .reeve" Ltd. Amalgamation with Mahindra & Mahindra Limited Amalgamation with Mughal (nve"tment & trading Co. Pvt. Ltd. Amalgamation with A-hi"hek Cement" Ltd. Amalgamation with )ain Commoditie" Ltd. Amalgamation with &tono Machine" & Ca"ting" Ltd. Amalgamation with erger Paint" Ltd. Amalgamation with )a%"hri Production Pvt. Ltd. Amalgamation with )ane #olding" Limited Amalgamation with )ane #olding" Limited Amalgamation with (ndian Petrochemical" Corporation Ltd Amalgamation with )eliance Capital Ltd. Amalgamation with )eliance Energ! Ltd. Amalgamation with )eliance (ndu"trie" Limited Amalgamation with )eliance (ndu"trie" Ltd. Amalgamation with )eligare Technova Limited Amalgamation with 2ichola" Piramal (ndia Ltd. Amalgamation with )ico Auto (ndia Ltd. Amalgamation with 5EC (nternational Limited Amalgamation with )amco &uper Leather" Ltd. Amalgamation with triton Corp Ltd. Amalgamation with &al3er Electronic" Ltd. Amalgamation with Pioneer Em-rodiarie" Ltd. Amalgamation with 4ltratech Cement Limited Amalgamation with 2et Axi" &oftware &ervice" Ltd. Amalgamation with 4nited &pirit" Limited Amalgamation with Magma Lea"ing Ltd Amalgamation with &hree )a%a"than &!ntex Ltd Amalgamation with 5arnataka rewerie" & ,i"tillerie" Pvt. Limited Amalgamation with Jai ala%i (ndu"trie" Ltd. Amalgamation with &hriram tran"port 0inance Compan! Ltd. Amalgamation with &hriram tran"port 0inance Compan! Ltd Amalgamation with &kol rewerie" Ltd. Amalgamation with &iemen" Limited Amalgamation with &iemen" Ltd.9:;

:1

&iltap Chemical" Ltd. &kol rewerie" Ltd. &mithkline eecham Pharmaceutical" (ndia Ltd. &olectron EM& (ndia Limited &olva! Pharma (ndia Limited &outh A"ian Petrochem Limited &outhern (ron and &teel Compan! Ltd. &P L Ltd &P(C 'rganic" Ltd. &pice Communication" Limited &PL Pol!mer" Limited &ree 5aila"h &ugar" and Chemical" Ltd. &ree Meenak"hi Mill" Ltd. &ree )a!al"eema Petrochemical" Ltd. &ree )a!al"eema Power Corporation Ltd. &ri Chakra )emedie" Ltd. &"tella &ilk" Ltd. &ummit &ecuritie" Limited &upreme 'riented 0ilm" Ltd. &wa"tik )oofing Ltd. Tata 0inance Ltd. Tata #!dro Electric Power &uppl! Co. Ltd. Tata (nfotech Ltd. Techno Electric & Engg. Co. Limited Televi"ion Eighteen (ndia Limited *T$<=+

Textool Compan! Ltd. The Champdan! (ndu"trie" Ltd Thirani Chemical" Ltd. Time" ank Ltd Titagarh &teel" Limited Torrent Ca-le" Limited Torrent Power AEC Ltd Torrent Power &EC Ltd tri"tar Enterpri"e" Ltd. T$& Autolec Ltd. T$& Electronic" Ltd. T$&6&u3uki Limited. 4daipur Pho"phate" & 0ertili3er" Ltd. 4nited 1e"tern ank Ltd

Amalgamation with &upreme (ndu"trie" Ltd. Amalgamation with Morkutir (nve"tment and trading Compan! Ltd. Amalgamation with .laxo (ndia Ltd. Amalgamation with Centum Electronic" Limited Amalgamation with A--ott (ndia Limited Amalgamation with ,hun"eri Tea & (ndu"trie" Limited Amalgamation with J&1 &teel Ltd. Amalgamation with &angam *(ndia+ Ltd Amalgamation with Manali Petrochemical" Ltd. Amalgamation with (dea Cellular Limited Amalgamation with &upreme Petrochem Limited Amalgamation with 5akati!a Cement &ugar and (ndu"trie" Ltd. Amalgamation with .u%arat #eav! Chemical" Ltd. Amalgamation with &ree )a!al"eema #i6&trength #!po Ltd. Amalgamation with &ree )a!al"eema #i6&trength #!po Ltd. Amalgamation with Auro-indo Pharma Ltd. Amalgamation with Ea"tern &ilk (ndu"trie" Ltd. Amalgamation with )P. (tochu 0inance Limited Amalgamation with &upreme (ndu"trie" Ltd. Amalgamation with &ah!adri (ndu"trie" Ltd. Amalgamation with Tata Motor" Ltd. Amalgamation with Tata Power Co. Ltd. Amalgamation with Tata Con"ultanc! &ervice" Ltd. Amalgamation with &uper 1ind Pro%ect Limited ,emerger of 2ew" u"ine"" 4ndertaking of T$<= into i-n<= roadca"t Ltd. and Amalgamation of )e"idual T$<= into 2etwork<= Media and (nve"tment" Ltd. Amalgamation with Lak"hmi Machine 1ork" Ltd. Amalgamation with A( Champdan! (ndu"trie" Ltd Amalgamation with Lime Chemical" Ltd. Amalgamation with #,0C ank Ltd. Amalgamation with Titagarh 1agon" Limited Amalgamation with Torrent .u%arat iotech Limited Amalgamation with Torrent Power Ltd Amalgamation with Torrent Power Ltd Amalgamation with .alax! Appliance" Ltd. Amalgamation with &undaram 0a"tner" Ltd. Amalgamation with T$& eTechnolog! Ltd. Amalgamation with &undaram Auto Eng. *(+ Ltd. Amalgamation with ,harma"i Morar%i Chemical" Ltd. Amalgamation with (ndu"trial ,evelopment ank of

::

4rvi Chemical" & Allied (ndu"trie" Ltd.

(ndia Ltd Amalgamation with 2ewone trading Co. Pvt. Ltd.

DE+ERS IN INDIA
Cashing in on a "ooming stock market over the last couple of years! promoters of Indian companies have "een "usy unlocking value from their "usinesses .s a result! they have "ecome wealthier "y demerging assets or divisions or even just transferring licences Consider thisM had 4eliance PetroleumFs refinery "een set up within 4eliance Industries! the stakeholders may not have enjoyed the market capitalisation of 4s 21!':1 crore that the former commands .gain! the market capitalisation of 4eliance Power! which is yet to implement a single power project! is 4s @:!9&1 crore whereas that of 4eliance 7nergy is less than half of that at 4s '6!'&2 crore 8iving off "usinesses into separate companies has paid off handsomely ;harti Infratel! the tower company of ;harti .irtel! is estimated to have an e+uity value of 4s 11!666 crore! which should "e unlocked soon ;y spinning off its towers into a new company and "ringing in new shareholders! ;harti will add to its e5isting market capitalisation of 4s 1!:2!666 crore VALUE SPLITS
COMPANY )eliance Energ! harti Airtel>$odafone )eliance Communication" #indu%a TMT (ndia-ull" 0inancial &ervice" &un Pharma Camlin .TL .E &hipping 8ee .M) (ndu"trie" &ilverline Technologie" Media $ideo &olectron Centum Electronic" ASSETS SPUN OFF Power pro%ect" Tower" Tower" (T and (Te& -u"ine"" )eal e"tate undertaking (nnovative )&, divi"ion Chemical" divi"ion (nfra"tructure unit 'ff"hore "ervice" -u"ine"" )egional channel" and ca-le 0erro allo!" Animation -u"ine"" )eal e"tate divi"ion Electronic manufacturing "ervice" -u"ine""

:2

Similarly!

4eliance

Telecom

Infrastructure! which houses the towers

of 4eliance

Communications! has "een valued "y private e+uity investors at nearly 4s %2!666 crore =thers are also getting into the act L ITC is looking to spin off its hotels "usiness while Pantaloon 4etail wants to hive off ;ig ;a/aar and Bood ;a/aar IItFs a cyclical phenomenon linked to valuations in the stock markets Typically conglomerates tend to attract lower multiples than a single product or service company Therefore! in a good market! companies are keen to hive off "usinesses!Q said .rvind -ahajan! e5ecutive director of DP-3 -inority shareholders also gain in the process .s Shriram Iyer! head of research at 7delweiss! saidM PThe "enefits of a greater focus to each of the "usinesses do get reflected in the market The ma5imum value though is typically created when the demerged "usinesses get listed Q The com"ined market capitalisation of Sun Pharma and its demerged 4GD firm SP.4C has "een 16 to 11 per cent higher than the market capitali/ation of Sun Pharma since SP.4C listed in <uly %662 Shareholders of the erstwhile Hee Telefilms who got shares in Hee ,ews and >>IL! too! are gainers Data on the ;om"ay Stock 75change we"site suggest at least two demerger proposals a month over the last two years In the case of firms such as 37 Shipping! which demerged its offshore service "usinesses! the value of shares in the two companies is a"out 26 per cent more than the value of 37 Shipping at the time of the spinAoff Shareholders of Camlin! which spun off its fine chemicals division! too have seen an appreciation of a"out &1 per cent in this period P>hen the environment is not good! companies tend to consolidate so that one "usiness can "e hedged against the other and losses can "e offset against profits 8owever! in good times companies do not mind incurring higher e5penses on two separate firms The resultant increase in value created far outweighs the increase in costs of running two operations!Q e5plained Sanjeev Drishan! e5ecutive director! Price>aterhouseCoopers

:@

C0a1ter (
:9

( India & Ne; Glo#al Economic Scenario

India! an emerging economy! has witnessed unprecedented levels of economic e5pansion! along with countries such as China! 4ussia! -e5ico and ;ra/il India! "eing a cost effective and la"or intensive economy! has "enefited immensely from outsourcing of work from developed countries! and a strong manufacturing and e5port oriented industrial framework .s the economic pace is picking up! glo"al commodity prices have staged a come"ack from their lows and glo"al trade has also seen reasona"ly healthy growth over the last two years 7conomic Prospects for %611 The glo"al economy seems to "e recovering after the recent economic shock The Indian economy! however! was hit in the latter part of the glo"al recession and the real economic growth has witnessed a sharp fall! followed "y lower e5ports! lower capital outflow and corporate restructuring The glo"al economies are e5pected to continue to sustain themselves in the shortA term! as the effect of stimulus programs is yet to "ear fruit and ta5 cuts are working their way 26

through the system in %616 Due to the strong position of li+uidity in the market! large corporations now have access to capital in the corporate credit markets IndiaFs 7conomic =utlook Projection %66@ CPI %669 %616 %611 3DP 3rowth 9 '6I 2 &6I 1 '6I 2 %6I : '6I 9 &6I 1 16I ' 96I

Indian 7conomy %611A%61% In order to keep up the economic growth during times of the worst recession! government authorities in India have announced the stimulus packages to "olster economic growth To finance the stimulus packages! the Indian government has raised over 0166 "illion over the last four +uarters The countryFs pu"lic de"t! according to the 4eserve ;ank of Indian (4;I)! has /oomed to more than 16I of the total 3DP and the 4;I has started printing new currency notes Central 3overnment De"t in 4s Crores (16 -illion) K& %669 K& %616 I of 3DP

Pu"lic De"t (Sum of 1 and %) %!699!%@: %& %!161!'16 2' 16 21I 1 75ternal De"t % Internal De"t %&2!&11 22 %9'!9'1 :2

1!@:1!9&' ': %!%16!169 62

The sweeping wave of economic reforms and li"erali/ation! has transformed the "usiness scenario all over the world The most significant development has "een the integration of national economies with T+ar?et/oriented Glo#aliJed EconomyK The multilateral trade agenda and the >orld Trade =rgani/ation (>T=) have "een facilitating easy and free flow of technology! capital and e5pertise across the glo"e 3lo"ali/ation gives the consumer many choices J technologies are changing! esta"lished "rands are "eing challenged "y value J for money products! the movement of goods across countries is on the rise and entry "arriers are "eing reduced .s markets consolidate into fewer and larger entities! economies "ecome more concentrated In this international scenario! there is a heavy accent on the +uality! range! cost and 21

relia"ility of product and services Companies all over the world have "een reshaping and repositioning themselves to meet the challenges and sei/e the opportunities thrown open "y glo"ali/ation The management strategy in tur"ulent times is to focus on core competencies J selling loss making companies and ac+uiring those! which can contri"ute to profit and growth of the group The underlying o"jective is to achieve and sustain superior performance In fact! most companies in the world are merging to achieve an economic si/e as a means of survival and growth in the competitive economy There has "een a su"stantial increase in +uantum of funds flowing across nations in search of restructuring and takeover candidates #D has "een the most important foreign investor in #S. in recent years with ;ritish companies In telecom! the "iggest deals include .TGTA TCI! S;CA.meritech etc There have "een huge oil sector mergers! the "iggest "eing 755onA-o"ile! ;PA.moco and TotalAPretrofina It is estimated that oneAinAfour #S workers have "een affected "y the wave of mergers and ac+uisition activity In the <apanese conte5t! mergers and ac+uisitions are less relevant as they "elieve in alliances and joint ventures than mergers and ac+uisitions .lso! research has shown that <apanese are least preferred merger partner$ac+uirer The reason "eing A incompati"le on language National Scenario The unleashing of Indian economy has opened up lucrative and dependa"le opportunities to "usiness community as a whole The a"sence of strict regulations a"out the si/e and volume of "usiness encouraged the enterprises to opt for mergers and amalgamations so as to produce on a massive scale! reduce costs of production! make prices internationally competitive etc Today Indian economy is passing through recession In such a situation! corporates which are capa"le of restructuring can contri"ute towards economic revival and growth Despite the sluggish economic scenario in India! merger and amalgamation deals have "een on the increase The o"vious reason is J as the si/e of the market shrinks! it "ecomes e5tremely difficult for all the companies to survive! unless they cut costs and maintain prices In such a situation! merger eliminates duplication of administrative and marketing e5penses The other important reason is that it prevents price war in a shrinking market Companies! "y merging! reduce the num"er of competitors and increase their market share In the words of <ustice Dhananjaya E Chandrachud! Corporate restructuring is one of the means that can be employed to meet the challenges which confront business.

2%

Let us understand the techni+ues of restructuring ;efore that it needs to "e understood that A Corporate restructuring can take several forms! -ergers and ac+uisitions Portfolio restructurings Binancial restructurings 4estructuring may also "e classified into following forms! Binancial restructuring Technological restructuring =rgani/ational restructuring The most commonly applied tools of corporate restructuring are .malgamation -erger Demerger Slump sale .c+uisition <oint venture Divestment Strategic alliance Branchises OrganiJational restructuring eIercise -any firms have "egun organi/ational e5ercises for restructuring in recent years to cope with heightened competition The common elements in most organi/ational restructuring and performance enhancement programmes are descri"ed "elow! 4egrouping of "usinessM firms are regrouping the e5isting "usinesses into a few compact strategic "usiness units which are often referred to as profit centers Bor e5ample LGT ahs "een advised "y -ckinsey Consultants to regroup its twelve "usinesses into five compact divisions Decentrali/ationM to promote a +uicker organi/ational response to dynamic environmental developments! companies are resorting to decentrali/ation! deA layering! and delegation aimed at 2&

empowering people down the line Bor e5ample! 8industan lever Ltd ! has em"arked on an initiative to reduce

Port9olio restructurings -ergers! asset purchases! and takeovers lead to e5pansion in some way or the other They are "ased on the principle of synergy which says % V%W1 Z Portfolio restructuring! on the other hand! involves some kind of contraction through a Divestiture or a DeAmerger is "ased on the principle of PsynergyQ which says 1 A& W &Z

2'

C0a1ter 2%

2% Conclusions
>ith the overall study! we have thoroughly concluded that we understood that Demergers and .malgamations are for the "etterment and for making "etter profits and growth in positive direction Brom the study we understood the procedures involved in .malgamation G Demerger

21

>e understood the different reasons of .malgamation G Demerger >e understood the "enefits of .malgamation G Demerger >e also understood that there are various ta5 "enefits of .malgamation G Demergers

=verall! this is done to help out the "usiness growths and "usiness "enefits

2:

AnneIure

I Pro1osal
22

Name o9 t0e -earner .nurag D Registration No Program Name Address %662'299@ P3D;.ABinance -anagement [1'@:! 2th cross! 1st stage! %nd phase! ,ear S;I ;ank! Chandra Layout! ;angalore! Darnataka A 1:66'6

Title o9 t0e Pro5ectM

. Study on .malgamation G Demerger trends in India

O#5ecti6es
To analy/e and understand the procedures involved in .malgamation G Demerger To understand the different reasons of .malgamation G Demerger To study the "enefits of .malgamation G Demerger

Need 9or t0e to1ic

To study and understand the details of amalgamation and demerger in India

Researc0 +et0odology
Bor the accomplishment of this project following steps were doneM STEP 2M Detailed .nalysis of "usiness house .D.3 3roup India STEP $M This step is comprises of fetching information of 4eliance group of companies through secondary data STEP 7M Binally analy/ing and interpreting the collected data and preparing the final report Primary Data The scope is limited to research "ased on secondary data 2@

Secondary Data ?arious secondary sources were considered for getting the statistical data ;eing a non funded project Data freely availa"le was used! sources of which are Internet sources! ;ooks! <ournals! different >e"sites etc

C0a1terisation
Chapter 1M Chapter %M Chapter &M Chapter 'M Chapter 1M Chapter :M Chapter 2M Chapter @M Chapter 9M Chapter 16M .,,7C#47 I Proposal II ;i"liography Introduction to .D.3 ="jective G Scope .malgamation Demerger 4eason for .malgamation G Demerger Legal .spects Procedures in India Trends in .malgamation G demerger India G ,ew glo"al 7conomic Scenario Conclusion

II ,i#liogra10y
29

www relianceadagroup com www ril com www rcom co on www vkilon com www spinoffreport com www google com www invetopedia com www moneycontrol com www toi com www economictimes indiatimes com

@6