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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
02468
101214
Jan-10 Feb-10 Mar-10 Apr-10 May-10
Val
ue (U
SD
bn)
0
20
40
60
80
100
Num
ber o
f dea
ls
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 & AcquisitionsSector 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 (U
SD
bn)
0.000.200.400.600.801.001.201.401.60
Num
ber o
f dea
ls
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
24
…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 ContinueSubsequent Expenditure AllowedHolding Period benefit
For Asset TransferredContinue 1/4/81 Option For resulting shares Continue
B/f - carried forward Depreciation Allowed Loss Allowed
Cessation of liability TaxedExpenses 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;
Cement Unit Steel Unit
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
Promoter - 40% Public - 60%
Company X Ltd..
Promoter - 40% Public - 60%
New Company Y Ltd..Steel Unit
Cement Unit 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 SalePromoter - 40% Public - 60%
Company X Ltd..
Promoter - 40% Public - 60%
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 Tax liabilities of predecessor – Sec 170 Approval u/s 281 – practical difficulty
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 Tax liabilities of predecessor – Sec 170 Approval u/s 281 – practical difficulty
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 MappedFor 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
05/08/2359
Accounting Implications Valuations Share Exchange Ratio
60
Accounting Implications
Accounting Standard 14-
- Pooling of interest method
- Purchase method
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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
63
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 profitsDCF 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.
68
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
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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 31.03.046) 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
Illustration - Merger of HLC with TCL
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
Illustration - Merger of HLC with TCL
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 162.73Transfer of CRR of HLC to CRR 0.10Transfer of Capital Reserve of HLC to Capital Reserve -Transfer of P&L A/C of HLC to P&L A/C 45.30
209.13Balance transferred to General Reserve 60.19
75
Illustration - Merger of HLC with TCL
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
Illustration - Merger of HLC with TCL
P&L A/C 31.03.2004 Rs Cr31.03.0431.03.03Profit 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 30.0375.33Dividend (18.96)Tax on dividend (2.43)Transfer to General Reserve (5.00) 48.94Amount available for appropriation 634.50 497.11
77
Illustration - Merger of HLC with TCL
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 RatioShareholders 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 HLCShare exchange to take place on a suitable record date
78
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
