MERGERS AND ACQUISITION

ASSIGNMENT-1

DEMERGERS

BY DILSHAD SHAIK
BBA GEN
SEC-A
Today's Agenda
PART 1: CESC Ltd

PART 2: Jindal Stainless Ltd

PART 3: Rcom
PART-1

CESC Ltd had four demerged units namely

generation, power, retail, distribution and
other ventures. Since the retail unit incurred
losses. They did not want the overall
valuation to get affected. As a result, the
demerger helped the company to get better
valuated.
A Unit Is Loss-Making
CESC Ltd has set 31st October, 2018, as the record date for the
demerger of its power and non-power businesses
As per the new demerger agreement, the three new demerged entities
will be Power (Distribution & Generation), Spencer (Retail), and CESC
Ventures.
When a unit is loss-making in the company, it erodes the valuation of
the company. Especially, if the company is a public listed company it has
a direct effect on the shares of the company.
Even if a single unit is a loss-making it is reflected in the annual reports of
the company which in turn can affect the prospective investment of the
company.
Companies, therefore, choose the route of the demerger and separate the
loss-making unit. It not only serves the purpose of maintaining the
valuation of the company but also caters to the needs of specialized
attention to the loss-making unit.
PART-2

NEXT
When the company is debt-laden
As a part of the corporate resolution process under the
Insolvency and Bankruptcy Code, debt structuring of the
debtor company that takes place and Demerger can be a
part of it.
Jindal Stainless Limited as a part of its restructuring
demerged its three undertakings that is the domestic steel,
power and international steel business to leverage idle
capacity and in streamlining operations.
The proposed demerger created a possibility to distribute
the debt which is 8,580 crore. It is also beneficial for the
three companies to raise funds independently. Therefore
the burden of debt is distributed amongst four entities by way
of a demerger.
 RCom to demerge realty assets
PART-3 as Reliance Properties aims to
monetise assets worth $2B
Focus On Core Business
A company has a different line of business that demand
various investments, human resources etc. However, few
represent the core business of the company and they
derive most of their income into that respective business.
As a result, to find out the true potential the companies
consider a demerger example. The firm demerges the
potential units or the core business to give a special
focus.
Furthermore, the demerged business takes the benefit of
specialization and leadership which streamlines the
business.