Presented By CA Swatantra Singh,

1

Presented By Presented By

CA Swatantra Singh,CA Swatantra Singh, B.Com , FCA, MBAB.Com , FCA, MBA Email ID: Email ID: [email protected]

New Delhi , 9811322785New Delhi , 9811322785,, www.caindelhiindia.com, www.caindelhiindia.com,

www.carajput.com www.carajput.com

Mergers & Acquisitions

Current Scenario and Way Ahead

Precedents

Takeover of Ashok leyland by Hindujas Chabbria group took over Falcon tyres Ceat tyres taken over by Goenkas Pepsi & Coke taking over Parle and Indian soft drink companies Take over of Tetley by Tata Tea. Grasim acquired UltraTech through a Swap Tata Motors’ acquisition of Daewoo Jindal Vijaynagar steel merged Euro Iron & steel, Euro energy and

JSW Power ITC, Somani group through BIFR. Recently Vijay Malaya took over Shaw Wallace

Why M & A

Horizontal growth for enlarged markets & optimum utilization Vertical combination to economize cost and reduce tax burden Diversification of Business Combination of management, financial and human resources.

Synergies Improve dividend yield, earnings, book value of entities and cash

flow of the entities. Attraction to foreign investors Financial Restructuring and Tax Planning

Terminologies

Blending of two or more existing undertakings: “Amalgamation” Sale of business

- As a going concern – “Slump Sale”

- Individual assets - “Itemised sale” Merger / Amalgamation of existing business – “Merger” Sell to a subsidiary – “Subsidiarisation” Demerger Secondary market / negotiated purchase of shares – “Share

Purchase” Issue of fresh shares (preferential issue) – “Fresh Issue”.

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Current Scenario Revival in deal activity in the country More than double the transactions in first five months as

compared to same period last year

Rebound linked to recovery of Indian and global economy Active sectors – Telecom, Pharma, Cement, FMCG

Jan – May ‘10 Jan – May ‘09

No of deals 439 179

Value of deals USD 30 bn USD 8 bn

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Mergers & Acquisitions…

Deal SummaryTotal 2008 2009 2008 2009

Inbound 86 74 12.55 3.88 Outbound 196 82 13.19 1.38 Total Cross Border 282 156 25.74 5.26 Domestic 172 174 5.21 6.70 Total M&A 454 330 30.95 11.96

Volume Value (USD bn)

Deal Summary 2008 2009

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…Mergers & Acquisitions…Top 5 M&A Deals - 2009

Top 5 M&A Deals - 2008

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…Mergers & Acquisitions…

M&A Deal Value - Volume 5 Month Trend

31

13

1

856 60

68

89

44

0

2

4

6

8

10

12

14

Jan-10 Feb-10 Mar-10 Apr-10 May-10

Val

ue (

US

D b

n)

0

20

40

60

80

100

Num

ber

of d

eals

Value Volume

Deal Summary Volume Value (USD bn)Total 2010 2010

Inbound 34 4.88 Outbound 85 17.70 Total Cross Border 119 22.58 Domestic 198 3.46 Total M&A 317 26.04

Deal Summary - Jan-May 2010

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…Mergers & Acquisitions

Sector Volume USD mn %Telecom 6 13,518 52 Pharma & 21 4,854 19 Metals, Ores & 6 2,524 10 Banking & Financial Services 18 2,192 8 FMCG, Foods & Beverages 9 541 2

Top 5 M&A Sectors - 2010

Acquirer Target % Stake USD mnBharti Airtel Zain Africa 100% 10,700 Abbott Labs Domestic

Formulations Business of Piramal Healthcare Solutions

100% 3,720

Hinduja Group KBL European Private Bankers

100% 1,863

GTL Infrastructure Aircel's 17500 telecom towers

100% 1,787

Vedanta Resources Zinc business of Anglo American Plc

100% 1,340

Top 5 M&A Deals - 2010

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Private Equity…

Deal SummaryTotal 2008 2009 2008 2009

Private Equity 312 260 10.59 12.05

Deal Summary - 2008, 2009

Volume Value (USD bn)

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…Private Equity…Top 5 PE Deals - 2009

Top 5 PE Deals - 2008

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…Private Equity…

PE Deal Value - Volume 5 Month Trend

29

20 18

40

15

1.251.37

0.57 0.260.58

0

10

20

30

40

50

Jan-10 Feb-10 Mar-10 Apr-10 May-10

Val

ue (

US

D b

n)

0.000.200.400.600.801.001.201.401.60

Num

ber

of d

eals

Value Volume

Deal Summary Volume Value (USD bn)Total 2010 2010

Private Equity 122 4.02

Deal Summary - Jan - May 2010

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…Private Equity

Acquirer Investee % Stake USD mnQuadrangle Capital Tower Vision India NA 300

Unnamed Investors GMR Infrastructure Ltd

NA 298

Unnamed Investors Yes Bank NA 225

Temasek Holdings GMR Energy Ltd NA 200 GNVF, IDBI, IFCI, etc

Gujarat State Petroleum Co

5% 211

Top 5 PE Deals

Sector Volume USD mn %Real Estate & Infrastructure Management 14 519 13 Banking & 20 720 18 Power & Energy 4 318 8 Telecom 1 300 7 Cement 2 222 6

Top 5 PE Sectors

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Positive Trends… Market in favour of consolidation

Higher degree of homogeneity across markets due to globalization –

Marginal costs of set up in new markets

Brand identity recognizable across markets

Market dynamics favour fewer players – economies of size and

scale

Recent examples – Bharti – Zain, GTL Tower deal

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…Positive Trends… Flexibility and pragmatism demonstrated by Indian Promoters

Promoters recognise strengths and weaknesses and willing to adapt

No stigma attached to alienation of stake in companies

Ability to gauge time to encash vs carry on

Recent examples – Ranbaxy, Piramal, Wockhardt, Tata Docomo

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…Positive Trends… Availability of credible information

Reliable standards of accounting – transition to IFRS

Higher levels of transparency and corporate governance

Breadth and depth in the financial sector

Increase in number of players in the financial intermediary market

Emergence of investor classes with different risk appetites Angel investors, VC, PE, FIIs, Domestic cos, Foreign cos, Retail investors

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…Positive Trends Certainty in regulatory framework

Clarity in tax provisions relating to slump sale

Incorporation of M&A provisions in direct and indirect taxes

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Roadblocks… Positive trends yet to achieve full potential

Greater flexibility to be shown by Indian promoters

Need for consolidation not fully recognized

Grey areas in regulatory framework

Lack of clarity on stamp duty liability

80IA provisions not conducive to mergers and acquisitions

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…Roadblocks… Restrictive foreign exchange controls and listing norms

Direct listing of Indian shares on foreign exchanges not allowed

Indian companies not allowed to merge with foreign companies

Foreigners individually not permitted to invest in Indian shares

Restricts usage of Indian shares as currency for deals

Increasing protectionism

Governments keen on retaining national identity of iconic companies

Increasing use of capital controls to regulate flow of foreign capital

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…Roadblocks Accounting for M&A under IFRS

Appointed date of merger vs actual date of merger

Purchase method of accounting – valuation of intangibles and off

balance sheet items and residuary goodwill Marked departure from Indian GAAP – no comparability pre and post IFRS

Capital Reserve vs Credit to P&L A/c – MAT impact

Demergers to be treated as non-cash dividend – change in

accounting for transferor

IFRS to apply to top 50 companies – different norms applicable to

different companies at same time

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Wishlist… Certain shortcomings in IFRS to be addressed

Few norms contribute to volatility and subjectivity in fin statements

Accounting for FCCBs

Lease Equalization vs Inflation

Fair degree of subjectivity in fair valuation norms

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…Wishlist… Regulations to encourage cross border M&A

Indian companies to be allowed to merge with foreign companies

Capital controls to be lifted on the Indian rupee

Listing on foreign exchanges to be allowed and vice versa

Permit accounting and reporting in functional currency

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…Wishlist… Rationalization of tax provisions

Tax liability only on encashment - not on exchange or conversion

Tax benefits to continue in case of mergers

Clarity on treatment of depreciation post transaction

Introduction of group relief

Introduction of anti-abuse provisions like CFC and thin

capitalization rules As opposed to current anti-abuse norms prescribed in DTC

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…Wishlist Better protection of minority rights in corporate law

Strengthen norms on independent directors and corp governance

Suitable amendments in listing agreement

Provisions to eliminate conflicts of interest in cases where

management also holds majority shares

Corporate Restructuring -- Necessity

Companies worldwide are refocusing, downsizing and merging

to become globally competitive.

Developing core competence for global / domestic competition,

technological development through collaboration and joint

venture

Divesting non profitable business

Crystal Clear

Items Reconstruction

Amalgamation

Merger Acquisition & takeover

Meaning / Nature

Winding up an existing co. & its transfer to a new co. in its place

Full/partial transfer of one/more cos to another including merger

Dissolving one/ more entities to form or get absorbed into another co

Transferor sell outright on a going concern basis with all its worth

Share holding pattern

New Co’s remain substantially same

Same shareholders but different rights

Same shareholders different rights

Form and nature can change substantially

Restructuring

Demerger /Spin off Subsidiary

Sale as a going concern-

Slump sale

Itemized sale

Stocksale

Restructuring

Mergers/Amalgamation

• Merger of one or more company into another or merger of companies to form another company provided

– 75% in value of the shareholders of amalgamating company must become shareholders of the amalgamated company (Sec 2(1B))

• Amalgamation - Direct tax neutralized

• No income to amalgamating company/shareholders on the transfer of business undertaking/receipt of income. (Sec 47(vi))

• Depreciation to amalgamated company on the basis of tax w.d.v in the hands of the amalgamating company (Explanation 7 to Sec 43)

• Accumulated losses and unabsorbed depreciation of amalgamating company can be carried forward by the amalgamated company if specified conditions are fulfilled. (Sec 72A)

Amalgamation

Shareholder X

Cement Unit

Company X Ltd..

Shareholder Y

Cement Unit

Company Y Ltd..

Shareholders X & Y

Cement Unit

Company XY Ltd.

Income/ Loss transferred w.e.f Appointed dateCapital Gains:

To Transferor NIL To Shareholders NIL

Depreciation basis for: Transferee Existing w.d.v Transferor Remaining w.d.v Quantum Prorated

Tax Consequences On Companies

Tax incentives of undertaking Continue

Subsequent Expenditure Allowed

Holding Period benefit

For Asset Transferred Continue

1/4/81 Option

For resulting shares Continue

B/f - carried forward

Depreciation Allowed

Loss Allowed

Cessation of liability Taxed

Expenses on process Deductible

Tax Consequences…..Contd

Amalgamation.. .Issues

¾ shareholding criteria to be applied in respect of shares

held as on Appointed date or Effective date?

43B payment by amalgamated Company

Credit in respect of MAT paid by amalgamating Company

Depreciation on cost or WDV 43(1) vs 43(6)

Whether succession to business

Transaction between holding & subsidiary in the intervening

period

Dividend distribution tax paid

Conditions prescribed: For Amalgamating Co.

• Has been engaged in business in which accumulated losses occurred/depreciation remained unabsorbed for 3 or more

years

• Has held continuously as on date of Amalgamation 3/4 of book value of fixed assets held by it 2 years prior to date of Amalgamation

For Amalgamated Co:

• Holds continuously for 5 years 3/4 of book value of fixed assets of Amalgamating co.

• Continues business of Amalgamating co. for 5 years

• Fulfill conditions prescribed under Rule 9C

Tax implications……c/f and set off of losses u/s 72A

Conditions prescribed under Rule 9C

Amalgamated Co. to achieve production level of 50% of

installed capacity of undertaking of Amalgamating Co. before

end of 4 yrs & continue to achieve it till the end of 5 yrs

Amalgamated Co. to furnish a CA report to AO in Form No. 62

along with ROI for AY in which above condition is satisfied

and for subsequent AY falling within 5 yr period

Tax implications……conditions under Rule 9C in case of Amalgamation

Demerger...Promoter - 40% Public - 60%

Company(DC)

Promoter - 40% Public - 60%

Cement Unit Steel Unit

• Transfer of business undertaking as a going concern by one company (DC) to another company (RC) pursuant to a court Scheme subject to fulfillment of following conditions (Section 2(19AA))

– All properties and liabilities of the business undertaking are transferred at book values;

– Shares of the RC are issued to the shareholders of the DC on a proportionate basis;

– Shareholders holding not less than 75% in value of the shares of the DC become shareholders of the RC;


Company(RC) Company (DC)

Demerger ...Demerger - Direct tax neutral for company/shareholder.

• No income to DC on transfer of undertaking (Section 47(vib))

• No income to shareholder on receipt of shares in RC (Section 47(vid))

• Proportionate depreciation in the year of demerger. Depreciation to RC on the basis of tax W.D.V. in the hands of DC.[explanation to Section 43(1)]

• Accumulated business losses and unabsorbed depreciation (Section 72A):-

– directly relatable to the demerged undertaking - allowed to be carried forward by RC

– not directly relatable to the demerged undertaking - to be apportioned in the ratio of assets transferred to RC and assets retained by DC

• Demerged business undertaking eligible for most tax exemption - benefits available even as part of RC (deduction u/s 80IA, 80IB available for unexpired period to resulting Co.)

Demerger.. .Issues

¾ shareholding criteria to be applied in respect of shares

held as on Appointed date or Effective date?

Transactions between holding & subsidiary Company during

‘Appointed date’ & ‘Effective date’?

Dividend declared - DDT

43B payment by resulting Company

Whether succession to business

What happens if conditions for demerger are not satisfied

Demerger.. .Tax consequences if conditions of demerger not satisfied

Capital gain to transferor / shareholder

Deemed dividend to shareholder – dividend distribution tax

Section 72A not applicable

Depreciation to transferee on consideration paid

Cost of shares issued to shareholders of demerging

company

Subsidiary

• Transfer of undertaking to WOS for a consideration• Direct Tax - Transaction is tax neutral subject to a lock-in period.

(Section 47A )• No capital gains to the holding company (Section 47(iv)) • Depreciation to subsidiary on the basis of the written down value for the holding company (Explanation 6 to section 43)• Two layers of Dividend distribution tax


Company X Ltd..


New Company Y Ltd..Steel Unit


Company X Ltd.Cement Unit

Transfer of business undertaking as a going concern for lump sum consideration without values being assigned to individual assets and liabilities.(Section 2(42C)

Transferor Company

• Transferor Company liable to short/long term capital gains (holding period 36 months)(Section 50B)

– Capital gains computed by deducting ‘net worth’ from the sale consideration

• Step up of Depreciation - possible as transferee entitled to depreciation on the cost of assets.(Section 32 & 72) – Valuation of assets required

Slump Sale


Company X Ltd..


Cement Unit Steel Unit Cement Unit Steel Unit

Company X Ltd..

Y Ltd..

Slump sale.. .Issues

Contingent consideration – tax implications to

purchaser/seller

Negative net worth – capital gain?

Depreciation to purchaser on cost – impact of 5th proviso

to section 32

Tax liabilities of predecessor – Sec 170

Approval u/s 281 – practical difficulty

• Liable to long term capital gains depending on the period of

holding (holding period 12 months)

• In case of shares listed on a recognised stock exchange in

India

– Subject to securities transaction tax instead of Capital gains tax

– Deduction under section 88E of STT available if income under

‘PGBP' includes any income from taxable securities transactions

Stock Sale

Stock Sale.. .Issues

Interest deduction of acquisition cost



s

• Sale on the basis of value being assigned to a separate item.

• Transferor liable to short/long term capital gains depending on the nature of asset & period of holding

• Depreciable asset-Short term capital gain

• Non depreciable assets– For stock-Long term if held for a period > 12 months– For others-Long term if held > 36 months

• Depreciation to transferee on cost – opportunity to claim step up depreciation

Itemized Sale

Itemized sale.. .Issues

47A – No step up when holding Co. pays tax



Considerations

Legal Aspects:• Companies Act, 1956• MRTP Act• Industrial Development & regulation Act• Sick Industrial (special provisions) Act• SEBI Regulations

Finance Aspect: • Synergy• Valuation of firm – DCF / APV

Taxation Aspect: I.T.Act, 1961 Accounting Aspect: AS 14 Procedural Aspects – Scheme of Amalgamation

Legal Aspects I

Companies Act, 1956: Sections 391 to 396 An application to be made to the court along with

scheme of amalgamation, company’s final accounts. Court has powers to supervise and modify the

structuring of the scheme. Court can order a meeting of

shareholders, members as it deems fit. If a ¾ majority of such a meeting consents and the

scheme is sanctioned by court, file it with registrar. Court can order for merger of 2 cos. In public interest In case of court merger, the transferor co. will be

dissolved without winding up whereas in acquisition, the

transferor co. continues to exist. MRTP Now Competition Act:

Power retained with the government to order discontinue or restructuring of such combination agreement as would obtain dominant position.

legal Aspects II

Industrial (Development And Regulation Act):• High court can order to appoint anyone to takeover the management of the

entity for running or restarting. • License of the amalgamating co. shall automatically be transferred to

amalgamated co.

Sick Industrial (Special Provisions) Act:• Not applicable to non-industrial co.and small scale or ancillary undertaking.• Section 18 empowers BIFR to sanction the merger of a sick co. with

another co. & vice versa considering the employee’s views.

SEBI:• Regulation 3 of SEBI regulations provides for the non applicability of

takeover provisions to Amalgamations effected u/s 391 to 394 of companies act and Sick Industrial units u/s 18

Finance Aspect… Returns>cost

Synergy is the economic value of benefits arising out of Amalgamation.

Synergy = VAB –(VA + VB) Hence, it signify the difference between combined value and individual values of entities.

Synergy can be a vital but a sole determinant of Amalgamation. Post merger integration, managerial talent can result in abnormal returns.

Valuation of the transferor entity can be done by DCF Methodology i.e. discounting the estimated future cash flows of entity (less) value of debt and other obligations as estimated.

An alternative approach to value target co. can be APV:• Value the company as if it were financed entirely with equity.• Estimate the value of financing side effects like tax shields etc• Add the two to arrive at APV.

Taxation Matters

Transferor Company can claim Capital gains exemption u/s 47(vi)

WDV of depreciable assets of transferor co. as on the appointed day to be added to the respective block of transferor co. Other Assets can be taken at actual cost – Expl (2) to Section 43(6)( C).

Depreciation claim to be split up between both cos. as per number of days

Only accumulated business loss & unabsorbed depreciation can be transferred. Capital loss to lapse. Transferee co. should be an Industrial undertaking, Shipping Company, Hotel or a Bank to claim benefits.

Tax benefits u/s 10A,10B,80IA,80IB shall be available continuously.

Amalgamation expenses can be claimed as deduction equally over 5 years period.

No transfer for shareholders of transferor Co. hence no tax liability. Period for which shares are held in transferor co. to be considered for indexation.

Tax issues Mapped

For Transferor

• Carry forward of loss / depreciation• Capital gains tax.• Transfer pricing.• Tax avoidance device• Business closure• Diversion of income at source.• Depreciation.• Tax impact of alternate funding.• Staggered consideration.• Capital receipt.• Chapter XXC - Allocation of common assets / liabilities.

For Transferee• Carry forward of loss • Production / asset holding criteria.• Depreciation on tangible / intangibles.• Tax credit under MAT.• Deduction for 43B liabilities.• Deduction for liabilities of predecessor / remission of liabilities.• Cost of acquisition / fair market value.• Continuity of tax exemptions / deductions.• Restatement of value.• Succession of business.

Tax issues Mapped

For Shareholders

• Deemed dividend

• Capital gain / loss

• Consideration in kind / staggered consideration.

• Short term / long term capital assets

• Cost of acquisition

• Transfer pricing

• Treaty protection

• Foreign tax credit

• Underlying tax credit

• Tax sparing on exempt income

• Tax avoidance

Tax issues Mapped

• Reduce Dividend distribution tax

• Opportunities to utilize losses.

• Step up of tax depreciation base.

• Reduced administrative cost.

• Transfer pricing asymmetry.

• Flexibility of allocating common expenses.

• Impact on quantification of tax incentives.

• Possibility of depreciation on intangibles

• Mitigation of minimum alternate tax.

• Impact on tax incentive of change in holding / migration of business.

• Tax optimization by alternate funding methods.

Long term tax Objectives

AS 14 : Accounting Interpretations

Applicable for Amalgamation as defined in Companies Act, 1956. Not applicable for other ways of reconstruction, takeover.

AS 14 to be followed only for accounting in books of transferee co. For transferor Co. has to be as per common principles.

Consideration includes shares, securities, cash and other assets by means of which obligation is discharged.

Amalgamation in nature of merger: Pooling of Interest• All Assets and liabilities of transferor taken over by transferee Co.• Consideration paid in equity shares except for fractional shares• Business of transferor co. to be carried on by transferee Co.• Shareholders of at least 90% or more in the transferor Co. to become shareholders in transferee co.• The Assets and Liabilities to be taken over at book values without making any adjustments by way of

revaluation or otherwise.

Amalgamation in nature of purchase: Purchase method If any of the conditions regarding amalgamation in nature of merger is not satisfied.

Accounting Methods

Pooling of interest

In the Financial statements post Amalgamation, line by line addition of all assets and liabilities of all entities except share capital.

Any Excess realised / loss suffered to be adjusted by reserves.

For statutory reserves open Amalgamation adjustment a/c.

Amortize goodwill arising out of such events over 5 years.

Purchase Method

Assets and liabilities to be recorded in the books at the value at which they are taken over by the transferee co.

Any surplus over net assets to be debited to goodwill and loss suffered to be credited to capital reserve.

Reserves and surplus shall not be transferred to the purchasing co.

Treatment of statutory reserves and goodwill shall remain same as in pooling of interest method.

Scheme of Amalgamation or Merger

No prescribed format for a scheme and is designed to suit terms and conditions relevant to proposal

Provision for vesting the assets and liabilities of transferor co. should be clearly defined. If transferee co. does not want to takeover any item, should mention it specifically.

Define the effective date from which the scheme is intended to come into operation.

Valuation of the shares to decide the exchange ratio. The method has to be appropriate and acceptable to majority.

Position of employees has to be clearly set out with a specific mention of transfer of employees at same terms and conditions.

The application for merger can be made by the company, members, creditors or liquidator.

Acquisitions and Takeovers

It is the purchase of one of the business as a going concern / acquisition of controlling interest in it in a friendly or a hostile way.

Takeover by reverse bid wherein a smaller co. gains control of a larger co. Buy out is the acquisition by incumbent management of the business where

they are employed. Full buy out is still a concept popular in OECD countries. Direct negotiations / acquisitions of shares are the most common ways of

takeover in India No one shall acquire shares/voting rights of entitlements of over 15% without

Public Announcement as prescribed by SEBI. Guidelines for takeovers are embodied in clause 40B of the Listing Agreement

of SEBI Tax shield for unabsorbed losses and depreciation u/s 72A can be

exploited through Acquisitions

04/22/2359

Accounting Implications Valuations Share Exchange Ratio

60

Accounting Implications

Accounting Standard 14-

- Pooling of interest method

- Purchase method

61

Accounting implications

Amalgamation – Accounting

- conflict of accounting policies

- uniform set of accounting policies

- Change in accounting policies reported in accordance with AS-5

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Accounting implications

Treatment of Reserves

- merger accounting - identity of Reserves

- purchase accounting - net assets value – consideration

= reserve

(Statutory reserve to be preserved)

- Treatment of goodwill

- implication of AS-26 Intangible asset

- Balance in Profit & Loss A/c

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Accounting Implications

Disclosure

(a) particulars of amalgamating companies

(b) effective date of amalgamation for accounting purpose

(c) method of accounting (pooling vs purchase)

(d) particulars of the Scheme

(e) description and number of shares issued

(f) exchange

(g) treatment of difference

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Valuation and determination of Share Exchange ratio Valuations

- CA Valuations

- Merchants Bankers Review

- No two valuations are likely to be identical

- fairness

- a matter of opinion

65

Valuations

Book value method – net assets method

Market value method

Profit earning capacity method OR yield method

future maintainable profits

DCF method

Appropriate weightage

Average of the three methods

66

Valuations

Who can object to Valuation

Members

Creditors

ROC

Employees

67

Share Ratio

Share Exchange Ratio

- in the case of amalgamation

Share entitlement Ratio

- in the case of demerger/arrangement

Reduction of share face value in transferor Co. and issue of shares for the reduced value in transferee co.

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Share Ratio

Court not to interfere with share exchange ratio Public interest Movement in market price during the intervening period not material Share exchange in the case of holding and subsidiary co

amalgamation Extinguishment of intercompany shareholding Trust holding Method of valuation and resultant share ratio to be mentioned in

explanatory statement

69

Share Ratio

No necessity that equity to be exchanged for equity

Equity can be exchanged for preference shares as option to shareholders

Shares to be live during the intervening period from appointed date

to record date (after effective date)

70

Demerger

No specific accounting standard

AS 14 by and large applies

Valuation on the basis of identifiable business

Share entitlement ratio

Shares of demerging Co. not to be extinguished

71

Amalgamation Accounting – an Illustration Hind lever Chemicals Ltd. (HLC) with Tata Chemicals Ltd (TCL)

HLC – bulk chemicals & fertilizers TCL - Chemicals & fertilizers

Scheme operative from 01-April-02 Bombay High Court sanctioned TCL scheme on 14-Oct-03 Punjab & Haryana High Court sanctioned HLC scheme on 19-

May04

Effect given in 2003-04 accounts of TCL

72

Illustration - Merger of HLC with TCL

Notes to the Balance Sheet & P&L account of TCL 31.03.04

6) Scheme of Amalgamation

(a) understanding of HLC has been transferred to and vested into TCL retrospectively from 1st April 2002 (the

appointed date). The Scheme has been given effect to in these accounts. The effective date of amalgamation is 01-06-04

(b) the operations of HCL include manufacturing and trading in fertilizers and Bulk Chemicals

(c) pooling of interests –method as prescribed by AS 14

73


Rs Cr Rs CrFixed Assets 166.33

Investments 3.43

Net Current Assets 217.84

Total Assets 387.60

Less Loans 62.46 Deferred tax liability 21.36 (83.82)

303.78

74


303.78

Issue of shares 34464000 Equity Shares 34.46

in the ratio of TCL for every two HLC

Transfer of Share premium HLC to Share premium 162.73

Transfer of CRR of HLC to CRR 0.10

Transfer of Capital Reserve of HLC to Capital Reserve -

Transfer of P&L A/C of HLC to P&L A/C 45.30209.13

Balance transferred to General Reserve 60.19

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Shares to be issued to HLC shareholders by TCL eligible for dividend declared by TCL

P%L Appropriation A/C of TCL to include dividend on shares pending allotment to HLC shareholders

Income and expenses during the period 01-04-02 to 31-03-03

incorporated in the Accounts 2003-04 as HLC carried on the existing business in “trust” on behalf of TCL

All vouchers documents for the period are in the name of HLC

76


P&L A/C 31.03.2004 Rs Cr31.03.04 31.03.03

Profit after tax 220.53 196.58Balance brought forward 365.03 300.53Amount transferred on amalgamation of HLC:Balance in P&L A/C 01.04.02 45.30Profit after tax for 2002-03 30.03

75.33Dividend (18.96)Tax on dividend (2.43)Transfer to General Reserve (5.00) 48.94Amount available for appropriation 634.50 497.11

77


Valuation

valuation carried out and recommended by N.M. Raiji & Co. CA s and Delloitte Haskins & Sells CA s

Board of Directors on the basis of their independent valuation and judgment accepts the recommendation

Share Exchange Ratio

Shareholders of HLC (transferor Co.) eligible to get 5 (five) fully paid up equity shares of Rs 10 each of TCL (transferee Co.) in respect of every 2 (two) equity shares of the face value of 10 each held in HLC

Share exchange to take place on a suitable record date

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Presented By Presented By

CA Swatantra Singh, B.Com , FCA, MBA CA Swatantra Singh, B.Com , FCA, MBA Email ID: Email ID: [email protected] New Delhi , 9811322785,New Delhi , 9811322785, www.caindelhiindia.com, www.caindelhiindia.com, www.carajput.comwww.carajput.com

Presented By CA Swatantra Singh,

Documents

deal activity

ma dealsacquirertarget

month trendvaluevolumejan

book value of entities

month trendsheet2sheet3

pe deals

ma sectorssectorvolumeusd

mergers acquisitionstop