MERGERS, ACQUISITIONS & CORPORATE RESTRUCTURING

1

Introduction
Terminology: Merger and Acquisition It‟s usually used to describe the fusing together of two or more entities, whether voluntary or enforced. Merger: Two entities join together to submerge their separate identities into a new entity. Acquisition: 1. One entity acquires a majority share-holding in another, while the identity remain in existence. It‟s also referred as “take over” 2. Often the term Merger is used for T/O, because of cultural impact on acquired entity – no one likes to be “taken over”

Types of Merger
1. Horizontal Integration: Merger of entities in same line of business combines.

2. Vertical Integration: Acquisition of one entity by another, which is at different level in the chain of supply A. Forward Integration: Near to customer B. Backward Integration: Near to manufacturer (manufacturing)
3. Conglomerate: Two companies in unrelated businesses combine.

Why do merger happen ???
Synergy : NPV(AB) > NPV(A) + NPV(B) (or 2 + 2 = 5)

Reason for M&A
Basic: Maximize shareholders wealth/value Reasons: 1. Increase market share – Power: Competitor merge (Tata Sky & Reliance Big TV) 2. Economies of scale: Bigger company, Duplication avoided (Big Bazaar with Subhiksha) 3. Combining complementary needs: Unique products but lake technical skills to market on large scale (JJMI Imports, they don‟t manufacture). Both entities gain something extra. 4. Improving efficiency: Lucrative market, But poor management (May b mgr like u MBA) or inefficient operation. 5. Lack of profitable investment Opportunity (Surplus Cash): Doesn‟t want to pay out surplus as dividend & need place to invest. 6. Tax Relief: Unclaimed loss (Income Tax - can be setoff within 8 year) 7. Reduce Competition: Caution- Shouldn‟t fall foul of the competition commission 8. Asset stripping: Even I don‟t know this ???? Satyam & Maytas Ghotala.

-ve Comments on reason for M&A
1. Diversification, to reduce risk: Acquiring an entity in a different line of activity may diversify risk, for the entity. However, this is irrelevant to the Shareholder – Because, they can do diversification by investing in more than one entity. Hence, this doesn‟t maximize SH value.

2. Share of the target entity are undervalued: Although this is against the efficient markets theory (every one is smart). The shareholders of the entity planning the T/O would derive as such benefit (at a lower administration cost) from buying such undervalued shares themselves.

share into equity share. There are no of ways. Poison pills: Convert pref. 2. High asset values: Fixed assets are revalued to current value (FMV – IFRS) to ensure that SH are aware of true value per share. This is possible. . sell attractive assets to reduce the lucrativeness of acquisition. Pacman strategy: The target entity makes counter offer to bidder. They are… 1.Defenses against takeover Before the Bid: Any listed entity needs to be aware of the possibility of a bid at all times. if target is strong & financial sound company. 6 6. Communicating effectively with shareholders: Have a public relation officer specializing in financial matters liaising with stockbrokers. The right SH: Managing SH to ensure “Right” SH are on board. keeping analyst fully informed and speaking to media/journalists. 3. 4. by which a management board can protect the entity. Shark repellent – Super majority: AOA is changed to require a high % of shares to approve an acquisition or merger – Say 80% 5.

5. Profit forecast: Poor profit performance can be compensated by promising high future profit. This happens on the request of target company. method of increasing EPS. Competition commission: See Govt. 2. Concentrating on – Bidders management style. For this to be workable. overall strategy. dubious A/c policies and lack of capital investments. (UK: Wellcome brought forward their financial results when attack from Glaxo). Attacking the bidder: RNRL (ADAG) way of doing media campaigning & attack bidder. .Defenses against takeover After the Bid: 1. 4. the target company must issue any reply to SH within 14 days. it should be 7 proved that T/O is against public interest. Intervention by bringing in the competition commission. … Sheikh Chilli ??? 3. more acceptable bidder could present itself as a “White knight” to the board of target. Rejection letter: Having received the bidders offer doct.. In that majority of SH may reject the offer. White Knight: Ask new.

Methods of payment for an acquisition 1. SH of target entity are given shares in acquiring entity based on exchange ratio. Share exchange: Large T/O always involves an exchange of shares. . 3. this increase gearing (increase in financial risk). Other: Debt Finance: raising new debt and paying for purchase consideration. However. Cash: Any one needs explanation on this ??? 2. 4. if achieved specified performance targets. Earn-out arrangements: Initial amount is paid (part of value) and balance is paid.

000 7. The entity is therefore really worth only 13 X `60.000 If A intends to pay `12 lakh .200.000 900. the cost to the bidder is simply: `1.000 – `900.Example 1 The cost of merger: cash Market price per share Nos. `420. The entity is paying 3 lakh for the identified benefit of merger.000.e.000 X 2). Anything addition over this is premium paid to T/O 9 .000.000 Entity B 15 60. of shares Market value of company Entity A 75 100. `300.cash for B.000. i.000 + (60. b) The cost is `300. what is the cost premium.500. if a) The share price does not anticipate merger.000 = `780.000. i. Therefore.e. b) The share price includes a „speculation‟ element of `2 per share ? Answer: a) The share price accurately reflects the true value of the entity (in theory).

000 + `400.300. Therefore the combined entity of A & B is worth: `7. Their share will be (16.800.585.000 shares (` 12 L/75) instead of `12 lakh cash.000 75. Suppose that the benefit of the merger have been identified by A to have a present value of 400.8% 2.000.000 Market value of company 7.e.600 100.500.80% 1.000 20.400 60. they will benefit from any future gains of the merged entity.86 B 13.000/(16.500. i.20% 7.Example 2 The cost of merger: Share exchange Entity A Entity B Market pri ce per share 75 15 Nos. but because B‟s SH will own part of A. of shares 100. Q : What is the true cost of merger to the acquired SH ??? Estimate of post acquisition prices A Propotion of ownership in merged entity Market Value: 8.000 1.000).000. or `8.24 10 . The premium would be `300.000+100.000 (i.8 L X propn of ownership Nos of shares currently in issue Price per share 86.000. 13. A thinks that B is worth `900. If A offers 16.e.000 + `1.000 900.214. or `1 300 000).000.000 60.

000 312. which will accrue to the combined form once the merger has taken place (Synergy).Example 2 (cond…) • What we are attempting to do here is to value the share in the entity before the merger is completed.212.000 11 .000 900. The true cost can now be calculated: ` 60. • The value also recognizes the split of the expected benefit.2 Less: Current market value Benefit being paid to B's SH A B A-B 1. based on estimates of what the entity will be worth after the merger.000 share in B @ 20.

3. 4. 7. The treatment of the target entity might take away benefit of an otherwise excellent acquisition. not to have the product range or industrial position that acquirer anticipated. incompatibility in data information system and opposition by target company staff. 5. level of autonomy to be granted. Lack of industrial or commercial fit: In Horizontal of vertical T/O. Such plan should cover aspects like – Differences in management style. but a serious misfit in management style or corporate structure. Failure to integrate effectively: Acquirer should have clear plan on – How to integrate.Reasons why M&A fail 1. which needs to be managed. 12 Inability to manage change: T/O is change. 6. where target entity turns out. Radical change from established routine. Paying too much: Price paid beyond that which the acquirer consider acceptable to increase satisfactory the long term wealth of it‟s SH. Lack of goal congruence: Goal mismatch. . 2. The fit/lack of fit syndrome: Good fit of product or services. (Marriage of highly qualified people) „Cheap purchase‟: The „turn around‟ cost of T/O at what seems to be a good price may well turn out to be a high multiple of that price – amt of resources like cash & management time could also damage the acquirer‟s core business.

8. or resource audit. Risk diversification may well lower the cost of capital & therefore. There may be economies of scale to identify and evaluated. Consider the effect on the workforce and determine – how many.Post-acquisition value enhancement strategies 1. and consider selling noncore elements or redundant assets. 2. 9. 6. . Make positive effort to communicate the post-acquisition effect on staff morals. Review each of the business unit for potential cost cutting/synergies or potential asset disposals. 11. then what will be the cost & how to handle that. 3. There may well be a need to pursue a more aggressive marketing strategy. There needs to be some strategy to manage different culture in old 13 entities. The risk of the acquisition needs to be evaluated. increase the value of entity. There needs to be harmonization of corporate objective. 10. 7. 12. The entities cost of capital should be re-evaluated. Undertake a review of assets. 4. if any redundancies are likely to happen. The integration strategy must be in place before the acquisition is finalized. 5.

PRACTICAL QUESTION 14 .

Q 1: 15 .

Q 2: 16 .

Q 3: 17 .

Q 4: 18 .

Q 5: 19 .

Q 6: 20 .

Q 7: 21 .

Q 8: .

M&A : AS A GROWTH STRATEGY STRATEGY MODELS/THEORIES 23 .

Ansoff‟s Matrix • • • • Penetration Market Development Product Development Diversification • • • • Star Question mark Cash cows Dogs BCG Matrix Strategy Development Grand Strategy Matrix • • • • Quadrant Quadrant Quadrant Quadrant I II III IV Product/ Industry Life Cycle 24 .

Market Penetration Product Development Ansoff‟s Matrix Market Development Diversification The Ansoff Growth matrix is a tool that helps businesses decide their product and market growth strategy. Ansoff‟s product/market growth matrix suggests that a business‟ attempts to grow depend on whether it markets new or existing products in new or existing markets. 25 .

that this strategy will require much investment in new market research. Restructure a mature market by driving out competitors . sales promotion and perhaps more resources dedicated to personal selling 2. advertising. The business is focusing on markets and products it knows well. Four main objectives: 1. . Increase usage by existing customers – Introducing loyalty schemes A market penetration marketing strategy is very much about “business as usual”. supported by a pricing strategy >> market unattractive for competitors 4. It is likely to have good information on competitors and on customer needs. It is unlikely. therefore. Secure dominance of growth markets 3.Focuses on selling existing products into existing markets.aggressive promotional campaign. Maintain or increase the market share of current products – competitive pricing strategies.

it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. New geographical markets .exporting the product to a new country New product dimensions or packaging New distribution channels Different pricing policies to attract different customers or create new market segments Introduce new products into existing markets.Business seeks to sell its existing products into new markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. therefore. 2. Markets new products in new markets. How ??? 1. . 3. as the business is moving into markets. For a business to adopt a diversification strategy. This is an more risky strategy. where it has little or no experience. 4.

. The BCG model is a well-known portfolio management tool used in product life cycle theory. BCG matrix is often used to prioritize which products within company product mix get more funding and attention. The BCG model is based on classification of products (and implicitly also company business 28 units) into four categories based on combinations of market growth and market share relative to the largest competitor.The BCG matrix or also called BCG model relates to marketing.

Q is >> how do we exactly find out what phase our product is in. A low-growth product .an established product known by the market. where does each of our products fit into our product mix? Should we promote one product more than the other one? The BCG matrix 29 can help with this. It also helps to decide what priorities to assign to not only products but also company departments and business units. Having a balanced product portfolio includes both high-growth products as well as low-growth products. Generally. and each stage in product's life-cycle represents a different profile of risk and return.a new one that we are trying to get to some market. customers know what they are getting. It takes some effort and resources to market it.Use of BCG matrix model ? Each product has its product life cycle. This product has only limited budget for marketing. and how do we classify what we sell? Furthermore. The is the milking cow that brings in the constant flow of cash (Colgate toothpaste). Characteristics of this product do not change much. and to build sales infrastructure. but it is a product that is expected to bring the gold in the future (iPod). A high-growth product . and the price does not change much either. . we also ask. a company should maintain a balanced portfolio of products. to build distribution channels.

.These products need to increase their market share quickly or they become dogs.Because of the low growth. .The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them. BCG CASH COWS (low growth. .The marketing strategy is to get markets to adopt these products. . . BCG QUESTION MARKS (high growth.Investments into supporting infrastructure can improve efficiency and increase cash flow more.If market share is kept.Cash cows are the products that businesses strive for. Stars are likely to grow into cash cows. high market share) .Stars are the leaders in the business but still need a lot of support for promotion a placement.Expensive turnaround plans usually do not help. low market share) .If competitive advantage has been achieved. 30 . low market share) . cash cows have high profit margins and generate a lot of cash flow.Question marks are essentially new products where buyers have yet to discover them. BCG DOGS (low growth. .Dogs should be avoided and minimized.Question marks have high demands and low returns due to low market share.BCG BCG STARS (high growth. promotion and placement investments are low. . . high market share) . .

31 .

Quadrant II . .If does not find any suitable strategy to adopt than divestiture of some divisions can be considered as another option .concentration on current markets reveals the adoption of strategies such as market penetration and market development and concentration on current products calls for adoption of product development strategy. . go for diversification. Present market position must click in the minds of the management that they need to work… An indepth analysis is necessary to identify the gray areas of incompetence and the reasons behind such ineffectiveness.Buy back the shares or to invest in the current venture in other divisions to strengthen the competitive position.Grand Strategy Matrix … Quadrant I . excellent strategic position. The quadrant one firm also requires identifying the risk associated mainly if it is committed to a single product line – To minimize risk. However as last resort 32 to liquidation. or horizontal integration. forward.For those firms which are in a strong competitive position and flourishing with rapid market growth.Firms having weak competitive position in fast growing market. concentrate on current markets and products .If firms have excessive resources – then adopt the expansion program and indulge in backward. .

Secondly diversifying the overall business through shifting the resources should be evaluated as another choice (related or unrelated diversification). whereas they enjoy the high cash flows due to the competitive position. The management has to change its philosophy and should necessarily adopt new approaches of governing the firm. . these firms can often hunt for related or unrelated diversification.they needs to introduce drastic changes in almost all the areas of managing the company.are characterized as having a strong competitive position but are operating in a slow growth industry. The management should be willing to incur some extensive costs in the overall revamp of the organization. these firms have limited requirements of funds for internal growth. To avoid .The quadrant three firms are operating in a slow growth industry with a weak competitive position.The firms in quadrant IV . These firms have to quest for the promising growth areas and to exploit the opportunities in the growing markets as they possess the strengths to instigate diversified programs in growing industries. Due to availability of excessive funds 33 quadrant IV firms can also pursue joint ventures. These firms are prone to further decline which may result possibly in liquidation.Grand Strategy Matrix … Quadrant III .Ideally. . . TF.Strategically retrenchment (assets reduction) would be the best option to be considered first. The final option is again divesture or liquidation. Quadrant IV .

PLC is very similar to a life. after which it eventually dies. Analogy: Product developed >> Introduce it to the market >> Becomes known 34 by consumers.Product Life Cycle (PLC) is a term used to describe individual stages in the life of a product. A living being is first born (introduction). PLC is an important aspect of conducting business which affects strategic planning. it grows >> Establishes a solid position in the market (mature) >> Overtaken by superior competitors – product is eventually withdrawn. it declines both mentally and physically (decline). . When it gets old. PLC can be divided into several stages characterized by the revenue generated by the product. then it grows through its youth (growth) to become an adult (maturity).

35 .

In some cases a penetration pricing strategy is used and introductory prices are set low to gain market share rapidly (Reliance mobile).The number of products in the product line may be reduced.Possible price reductions in response to competition while avoiding a price war. Prices may be maintained for continued products serving a niche market. Channels that no longer are profitable are phased out.Price . - . or reduced to capture additional customers.Emphasis on differentiation and building of brand loyalty. assuming a skim pricing strategy for a high profit margin to recoup development costs quickly. Trade discounts are minimal if resellers show a strong interest in the product.Expenditures are lower and aimed at reinforcing products.PLC … Introduction Growth or few products.Promotion is aimed at building brand more intensive. . Rejuvenate surviving products to make them look new again.Price .Promotion . the brand image for continued . incentives to resellers in order to avoid losing shelf space.Distribution is selective and scattered as the firm commences implementation of the distribution plan.Promotion .Maintained at a high level if demand is high.New product features and packaging options. Samples or trial incentives may be directed toward early adopters.Distribution . relatively - . awareness. .Distribution becomes .Generally high. . .Increased advertising to build brand preference. inventory of discontinued products.one undifferentiated Product .Promotion . Also intended to convince potential resellers to carry the product. 36 Distribution . Maturity . Incentives to get competitors' customers to switch.Product . Decline . improvement of product quality.Prices may be lowered to liquidate . .Distribution .New distribution channels and .Price .Distribution becomes more selective. added in order to differentiate the product from competing products that may have been introduced. .Promotion .Price .Product .Distribution .Product .Modifications are made and features are .

RESTRUCTURING CORPORATE .

or ownership or control. Restructuring Improve capitalization Improve debt composition Change ownership and control . Designed to increase the value of the firm.What is Corporate Restructuring ?   Any substantial change in a company‟s financial structure. or business portfolio.

It‟s All About Value … How can corporate and financial restructuring create value ??? Liabilities Equity Assets Fixed Assets & Investment Operating Cash flows Fix the financing Debt Fix the business o o The proportion of Equity & Debt : Achieve lowest WACC The kind of Equity & Debt : Short term? Long term? Convertibles? .

Restructuring … What to do ? Figure out what the business is worth now Fix the business mix – divestitures Fix the business – strategic partner or merger Fix the financing – improve D/E structure Fix the kind of equity Fix the kind of debt or hybrid financing Fix management or control Action points … Use valuation model – present value of free cash flows Value assets to be sold Value the merged firm with synergies Revalue firm under different leverage assumptions – lowest WACC What can be done to make the equity more valuable to investors? What mix of debt is best suited to this business? Value the changes new control would produce .

Divestitures: Dispose or sale of part of the assets or business unit Spin-offs: All or substantial assets. 2. 7. people. Downsizing: Cut down operation. 3. Split-up: All or substantial A & L (on going concern basis) to more than one company. cease to exist. production. Joint Venture Buy-back of Shares & Securities LBO‟s & MBO‟s: . 9. 4. 8. loans & business (on going concern basis) of one of the business division or undertaking to another company. Transfer all A & L to 100% subsidiary. Outsourcing: Outsource non-critical operation to achieve focus on core function & operation. in share exchange. 5. liabilities.Type of restructuring … 1. in share exchange. Carve-Out: It‟s a hybrid of divestiture & Spin-offs. 6. Transferor co.

the price paid must represent a higher premium to the current market price. ii. To avoid lawsuits. Can be of an entire company or divisions of a company.  Leveraged Buyouts: i. Cash proceeds of the sale could fund other defenses such as share buybacks. iv. Investors in LBOs are referred to as financial buyers because they are primarily focused on relatively short-to intermediate-term financial returns . iii. Borrowed funds are used to pay for all or most of the purchase price. The tangible assets of the company are used as collateral for the loans. Create a win-win situation for shareholders who receive a premium for their stock and management who retain control. ii. iv. Management team‟s purchase of the bulk of the firm‟s shares. iii.LBO‟s & MBO‟s … Both are known as “Going Private”  Management Buyouts: i.

iv. iii. control of the firm changes. but its equity shares remain illiquid securities. The MBO creates strong conflict of interests.LBO‟s & MBO‟s …  Important differences: i. v. ii. In LBO. . owners are insiders. Under MBO. ordinary business judgment rules applies. In LBO. control may not necessarily change since the stub equity remains in the hands of public shareholders. equity investors remain outsiders. LBO preserves equity liquidity but exploits no (or few) savings on reporting. the company saves on public reporting costs. Under the MBO. requiring the board to actively represent shareholders in the buyout negotiations. MBO leads to private companies while LBO leaves the company publicly traded with shareholders receiving “stub” equity in addition to cash payout. Under the MBO. In LBO.

LEGAL ASPECTS OF MERGER. ACQUISITION AND CORPORATE RESTRUCTURING .

Companies Act. 1956 II. SEBI (Buy back of securities) Regulations. Clauses 40A & 40B of the listing agreements of BSE & NSE V.Which are applicable Laws ??? I. 2003 . 1998 III. SEBI (Substantial acquisition of shares & takeover) Regulations. SEBI (Delisting of securities) Guidelines. 1997 IV.

Companies Act. where it involves transfer or A&L (part or full) to another company. when application is made for compromise or arrangement between company & its creditors or members • Compromise: Pre-existence of dispute or difference. SH agrees to forgo unpaid dividends in part or in full Section 394 • Power of the High Court. • This is without winding-up/liquidation of transferor company Other Points • Even in the cases of listed companies. type of arrangements are • Reorganization of share capital – consolidation or division of different classes or both • Non-convertible Debenture >> Convert into equity shares • Secure debenture holders agrees to release part or whole of the security • Creditors agrees to accept part payment or debenture in lien or both • Cumulative Pref. 1956 Section 391 • Deals with power of the High Court. when due to arrangement. which is to be resolved • Arrangement: No pre-existing dispute. SEBI doesn‟t have any powers to approve or disapprove an amalgamation or a demerger .

for application u/s 391 or 394 for representation. track record of past or pending litigation • All creditors or Creditors above certain value are given individual notice • u/s 391(2): If meeting happens then. by simple majority in nos. resolution approving amalgamation or demerger has to be passed.u/s 394A • HC needs to serve notice to Central Govt. unless official liquidator scrutinizes the books of accounts of transferor and submits a report to HC. 1956 … Condition precedent to approval from HC • Approval from Creditors and Members is to be obtained.# and ¾ majority of value of creditors/members present and voting in person or by proxy Report of the official liquidator • No order can be passed. by Central Government .Companies Act. by holding a meeting with them [u/s 391(1) – HC may order for meeting] • In practice. if any. holding of creditors meeting can be dispensed off by making an application with HC. stating that affairs of company are not against members or public interest – u/s 394(1) Notice to Central Government . which would generally based on reputation and good standing of company.

e. except from proceed of same kind of securities. buy-back of equity shares can be made using proceeds of preference share issue Illustration .u/s 77A[2(c)] Sources of buy-back • Free reserves • Securities premium accounts • Proceeds of any shares or other securities.u/s 77A[2(b)] • By Special resolution in AGM – Maximum of 25% of paid-up share capital and free reserves . i.Companies Act. 1956… Buy-Back of Securities Condition for Buy-Back – u/s 77A • Buy-back must be authorized by the AOA of company – u/s 77A[2(a)] • By Board resolution – Maximum is 10% of paid-up equity capital and free reserves .

as the case may be • (C) Consideration for buy-back to be paid in cash only • (D) Cannot withdraw offer. once draft filed with SEBI & public announcement • (E) No bonus share can be issued till the closure of the offer • (F) Promoter or their associate cannot deal in the share in the stock exchange till the offer is open • (G) No announcement of buy-back can be made during the pendency of any scheme of amalgamation or arrangement or compromise • (H) A company needs to appoint a compliance office for buy-back of shares • (I) Details of share brought back or destroyed have to be given to concerned stock exchange. 1998 Condition of Buy-Back and General obligation of the Co. that it would be required delist – regulation 3(2) • at-least 25% of each class of security issued by a company is required to get listed on any stock exchange [With prior approval – limit can be lower or 10%. needs to give details to public under regulation 19(7) . • (A) Buy-back only by way of • From existing SH on proportionate basis through tender process • From open market: (a) Book building process (b) Stock exchange • (Company cannot buy-back shares through negotiated deals) • (B) Company cannot buy-back it‟s share in such a manner.SEBI (Buy back of securities) Regulations. within 7 days • (J) Company cannot buy-back locked-in securities during the lock-in period • (K) Within 2 days.

irrespective of their % holding at the time of initial listing – a size of 2 Cr in nos. except companies • At the time of initial listing. needs to comply with relevant provision of SEBI (substantial acquisition of shares & t/o) regulation. and ` 1000 Cr or more in terms of market capitalization [sub-clause(iii)] • Public holding: Share outstanding other than promoters & promoter group and share held in custodian against overseas depository receipts • If fails to comply then. 1977 {Assignment . of issued shares of a class or kind for the purpose of continuous listing [sub-clause (i)].Clauses 40A & 40B of the listing agreements of BSE & NSE Clause 40A • All listed company.4} . of issued share of class [sub-clause(ii)] • Companied which reached or would reach in future. but not less than 10% of total nos. had offered to public less than 25%. needs to ensure minimum level of public SH @ 25% of total nos. the person who secures control of management. liable to delist in terms of SEBI delisting guidelines [sub-clause(ix)] Clause 40B • In case of takeover offer or due to change in management.

• However. there is no need for giving exit opportunity. • Offer must have a floor price – Based on average of 26 weeks quoted price. except one – then. SH must be given exit opportunity by reverse book building process Procedure for voluntary delisting • Precondition: (A) Prior approval from SH by way of special resolution.SEBI (Delisting of securities) Guidelines. Reinstatement of delisted securities . • Refusal by promoter to accept the final offer: If they do this – they cannot delist • Right of SH in case of compulsory delisting: Promoters are obliged to compensate @ FMV to SH. where shares are traded most frequently. (C) Make application to concerned Stock exchange & comply with all relevant condition • Exit Price: Should be through reverse book building process. while retaining listing at NSE . 2003 Points to be noted … • Delisting can be either compulsory or voluntary • If delisting is from few stock exchange.clause 18. if delisting is from NSE or all stock exchange.1 • After a Cooling period of 2 yrs . if they continue to hold securities in the delisted company and not sell them to promoters. (B) Public announcement.then.

ACCOUNTING & TAXATION ASPECTS OF MERGER. ACQUISITION AND CORPORATE RESTRUCTURING .

when incorporated in final balance sheet By way of purchase If any one or more condition is not satisfied .AS 14: Type of amalgamation AS 14 By way of Merger (a) All assets & liabilities are transferred (b) 90% SH of transferor company become the SH in transferee company (c) Consideration for amalgamation is received wholly in equity share of transferee company (cash may be paid for fraction portion) (d) Business is intended to carried on as it is (e) No adjustment is intended to be made in the book value of assets & liabilities.

(A) Purchase consideration and (B) value of A&L taken over. Securities premium iii. except Statutory Reserves (c) Difference between. +ve: Goodwill ii. Revenue into revenue. Revaluation into revaluation] (c) Difference between.AS 14: Accounting for amalgamation AS 14 – Accounting Method By way of Merger (Pooling of interests) (a) All assets. (A) Share capital issued + Cash for fraction and (B) Share capital in old BS. Book Value OR Fair Value (MV) on the date of amalgamation (b) Reserves should not be included. should be adjusted in reserve as … i. First in capital reserve. -ve: Capital reserve . then ii. liabilities & reserve are carried @ either. liabilities & reserve are carried @ Book Value (carrying amt ) & in the same form (b) Reserves should also be accounted in same head [capital into capital. Finally in Revenue reserves By way of purchase (Purchase) (a) All assets. should be adjusted in reserve … i.

i. etc… have to be reduced from both side of the B/S. u/s 2(47) Condition for exemption are: 1. transfer of assets may result into capital gain tax liability and hence. asset transferred and asset retained. The ICAI has not prescribed any accounting treatment for demerger 2. Specific liabilities & loans have to be transferred to the resulting company ii. special exemption is given in income tax act. However. discount on issue of shares. preliminary expenses. Common loans & borrowing have to be apportioned in the same ration of common borrowing/loans iii. Any revaluation must be ignored 3. Liabilities & loans to be transferred as – i.Accounting for Demerger 1.e. All assets and liabilities must be transferred at book value only 2. . Expenses like deferred revenue expenditure.

e. Demerger – u/s 2(19AA) • Both entities involved should be companies • Condition u/s 391 to 394 of Companies Act. cash or/and bond. condition to satisfy are • (1) All the assets are transferred • (2) All the liabilities are transferred • (3) ¾ of SH should become SH in amalgamated company (all classes of shares. no capital gain is chargeable . i. 1956 are compiled with • There must be transfer of undertaking to resulting company (slide on accounting for demerger) Capital gain tax exemption – u/s 2 (47) • Above transfer are not considered as capital asset transfer & hence. 1961 Amalgamation – u/s 2(1B) • In order to qualify as amalgamation.Income Tax Act. equity and preference shares) • Both type of amalgamation as per AS14 qualifies for exemption • This section doesn‟t specify mode of payment to be made to SH – it can be share.

Holding company merges with subsidiary or investee company ii. upto Eight assessment years  Unabsorbed DepN can be carried forward indefinitely Conditions are: 1. the losses arising under the head „profit and gains of business or profession‟ can be set-off against future profits. ship or a hotel or a banking company – • • • manufacturing or processing of goods & computer software generation or distribution of electricity mining. The amalgamating company has been engaged in the business in which such loss or unabsorbed DepN has occurred at least for THREE years Continue in the same business for FIVE years from date of amalgamation Reverse Mergers i. etc… 3. Amalgamating company has to be industrial undertaking. Profit-making company is merged with the loss making company .Implication on carry forward & set-off of losses and unabsorbed Depreciation  u/s 72 of the Income Tax Act. 4. Carry forward and set-off should be by same assessee 2.

58 .

Sign up to vote on this title
UsefulNot useful