EMAMI GROUP

Emami Group is a conglomerate that has had a presence in pan India since 1974 through a
variety of brands and business initiatives. The Party owes R.S Goenka and R.S. its source.
Agarwal Agarwal. It has an annual turnover of about 3700 crore from Rs.. In FMCG (fast moving
consumer goods), paper, writing instruments, edible oil and agriculture, bio-diesel, hospitals,
contemporary art, pharmacy, cement, real estate and retail, the company has business
interests.

ZANDU PHARMACEUTICAL WORKS LTD

Zandu Pharmaceutical Works was founded as a private company in October 1910. From the
very start the company started to gain popularity with its various products.

It was realized within a decade that it is difficult to meet the market's increasing demands, and
so on 10 December 1919 Zandu went public through stock issuance.

In 1990, an affiliate company Zandu Chemical Ltd. was set up at Ankleshwer in Western India to
manufacture bulk drugs and intermediates in order to diversify the market.

THE DEAL-A BRIEF OVERVIEW

In 2008, Emami purchased Zandu Pharmaceuticals Works Ltd from the Parikh family with an
investment of approximately Rs 730 crore, keeping in mind the tremendous synergy between
the Emami and Zandu brands in different categories. With this acquisition, Emami acquired
brands such as Zandu Balm, Pancharista and Nityam Churna, in addition to the other Zandu
ayurvedic product range. Zandu's FMCG company merged into Emami. That has helped
combine Emami and Zandu's FMCG business into one entity.

Emami Limited brought the entire 23.62 percent stake of the Vaidya family, one of Zandu's co-
promoters, to 27.5 percent in May 2008, raising their overall holdings as they already held 3.9
percent share.

After 2 days, Emami subsequently revealed an open offer to buy 20 per cent more shares from
Zandu shareholders. Offer price per share was Rs 7315. At this juncture, Parikh family headed
by Mr. Girish Parikh, one of the promoters, holding 22% stake in Zandu termed this as an
attempt for a hostile takeover and alleged Emami had Violated SEBI Takeover Code (1997).
This matter was referred to SEBI who transferred it to the board of law of the Company (CLB).

The High Court and CLB both held back Emami's open offer and instructed both parties to settle
the matter out of court.

Emami's and Zandu's share prices crashed on the stock market with the advent of the
proceedings and Emami doubled its original open offer price for Zandu pharmaceuticals from Rs
7315 to Rs 15000 in a revised bid.

SEBI cleared off the open bid for Zandu in September 2008. There was a valuation charge of Rs
1500 per share above and beyond the price of the share so the sum amounts to Rs 16500 per
share. The next month, the Offer was executed and closed.

In October 2008, a compromise was reached between Parikh family and Emami, with Parikhs
offering 18.18 percent stake to Emami at the Rs 16500 open offer price. The total amount of
the deal has come to a whopping Rs 242 Cr. Emami now had a total stake in Zandu of 65.7 per
cent.

Emami Ltd came forward later that month and took an additional 4.64 percent stake for a total
of 54 Cr to a 70.34 percent tally. That has paved the way for Emami Ltd to purchase Zandu
Pharmaceuticals. The whole transaction was equal to Crore Rs 713.

Emami had also invited members of the Parikh family to join their restructured board as
independent members, following the agreement between Emami and Parikhs.

ANALYSIS

Before the acquisition, Emami had a turnover of Rs. 604.81 crore in the financial year 2007-08.

The management predicted steady growth thanks to the introduction of Zandu's Ayurvedic
product range such as Zandu Balm, Zandu Chyavanprash which would complement Emami's
power brands such as Boroplus cream, Fair and Handsome Fairness cream

A turnover target exceeding Rs. 1000 crore was set and debt clearance was made for funds
raised for the acquisition by 2009-2010.

As the figures above depict, the acquisition helped Emami ltd. not only achieve their sales
target of Rs. 1000 crore by the year 2009-10 but, it could also clear its total debt raised for the
transaction.
Net profits and sales increased over the four-year period at a compound growth rate of 11.45
per cent and 10.727 per cent respectively. Currently, as rural demand increases, management
expects sales growth of 17-18 per cent for the next financial year.

REGULATORY ROADBLOCKS FOR THE MERGER TO GO THROUGH:

Any merger or acquisitions of body corporates has to comply with the rules and regulations
provided by the following laws:

1. Companies Act, 2013

2. Indian Contract Act, 1872
3. Specific relief Act, 1963
4. Income Tax Act, 1961
5. Competition Act, 2002
6. SEBI Act, 1992 and SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
1997
7. FEMA, 1999

In the given case the Parikh’s have alleged the Vaidya’s and the board of Emami for violating
the rules and regulations as provided under Companies Act, 1956, SEBI Act, 1992 and SEBI
(Substantial Acquisition of Shares and Takeover) Regulations.

However, when the matter was brought before the Company law board, the board after giving,
both the parties, an opportunity of being heard dismissed the petition and referred the matter
back to Bombay High Court on grounds that it did not have jurisdiction over the subject matter
i.e. SEBI Takeover Regulations.

Further when the Parikh’s moved to SEBI, the board, after giving, both the parties an
opportunity of being heard dismissed the petition filled by the Parikh’s and passed order in the
favour of Emami by approving the takeover.

However, when we look at the timeline of events we find that the process of takeover that
started in the month of May ended in the month of October. In other words, the takeover was
delayed due to operation of law.

In India the corporates have to comply with complex terms and conditions for the purpose of
merger and acquisition. Sometimes these complexities make the proposed merger or
acquisition less profitable of loss making due to consumption of time and heavy legal costs.
TAX CONSIDERATION

Emami obtained, through an offer buy understanding dated October 15, 2008 18.18% of the
shareholding of Zandu at a cost of Rs 15,000 (Rupees Fifteen Thousand in particular) per share
and furthermore paid a non-contend expense to Parikhs of Rs 1,500 (Rupees Fifteen hundred in
particular) per value share. Additionally Emami procured through open market buys stake in
Zandu on October 15, 2008.

Emami secured 70.34% stake in Zandu, which it acquired 18.18% @ Rs. 16,500 per share from
Parikhs, 23.62% @ Rs. 6,900 per share from Vaidyas, 28.54% - 3.9% through secondary market;
20% @ Rs. 16,500 per share; and 4.64% @ Rs. 14,440 per share (approx) From Public
Shareholders.

Further Emami revised the initial offer price from Rs. 7,315 to Rs. 15,000. The open offer was
made more attractive by revising the open offer price from Rs 15,000 per share to Rs 16,500 per
share. So it has to pay tax consideration on the above transactions done to acquire Zandu.