Description
Demerger & Other Modes of Restructuring
1 of 33
Presentation Overview
?
?
? ? ?
Demerger Subsidiarisation Slump Sale Capital Reduction Buy Back
19th July, 2008
2 of 33
19th July, 2008
Demerger
3 of 34
Demerger - Introduction
?
Demerger contemplates hiving off a division/unit/business of a company into a new/existing company. Demerger involves a vertical split of company, whereby business is transferred on a going concern basis to a new/existing company. This division may either: ? form a new company and operate separately from the original one ? or may get merged into another existing co.
Cont.
4 of 33
?
?
19th July, 2008
Demerger – Introduction
PRE
Shareholders
(Cont…)
POST
Shareholders
Undertaking A
AB Ltd
Undertaking B
Undertaking A
AB Ltd
Undertaking B
B Ltd
19th July, 2008
5 of 33
Reasons for Demerger
? ? ?
Unlocking Shareholder value Streamlining business segments To make financial and managerial resources available for developing other more profitable opportunities Selling unwanted and surplus parts in the business as a restructuring strategy to get rid of sick part of the company
19th July, 2008 6 of 33
?
Demerger – Examples
Examples of Demerger
?
Demerger of Consumer Product division of Cadila healthcare Ltd into Carnation Nutra Analogue Foods Ltd. Demerger of New Chemical Entity Research Unit, a division of Nicholas Piramal India Limited, into NPIL Research & Development Limited on a going concern basis.
?
19th July, 2008
7 of 33
Demerger – Case Study
DEMERGED COMPANY
PARTICULARS
Share Capital Reserves & Surplus Loan Funds Total Liabilities Fixed Assets Net Current Assets Total Assets
Before
100 600 300 1,000 600 400 1,000
After
100 350 200 650 400 250 650
RESULTING COMPANY
40 210 100 350 200 150 350
19th July, 2008
8 of 33
Does breaking up deliver value ?
19th July, 2008
9 of 34
Case Studies of Successful Restructuring
Reliance Demerger Date : January 18, 2006 (in Mn) Name of Company Pre- Demerger Market price No. of shares Market Cap 912.90 1,39,35,08,041 12,72,133 Post- Demerger Market price No. of shares Market Cap 708.46 289.00 43.84 22.61 1,39,35,08,041 1,39,35,08,041 1,39,35,08,041 1,39,35,08,041 9,87,245 4,02,724 61,091 31,507 27,480 15,10,047 18.70%
RIL Reliance Communications ventures Ltd Reliance Energy Ventures Ltd Reliance Capital Ventures Ltd Reliance Natural Resources Limited Total % Increase/(decrease)
19.72 1,39,35,08,041 12,72,133
19th July, 2008
10 of 33
Process of Demerger
? ? ? ? ? ?
?
? ? ? ?
Agreement on Appointed Date Scheme of Arrangement Convening a Board meeting Approval by the Board of Directors Petition to the Court Valuation Stock Exchange approval for listed Companies Meeting of Shareholders/ Creditors Registrar of Companies approval High Court approval Filing of High Court Order with ROC
19th July, 2008
11 of 33
Demerger – Conditions
?
Definition of Demerger – Section 2(19AA)
All the properties and liabilities of the demerged undertaking to be transferred on going concern basis ? Properties and liabilities are transferred at book value ? The resulting company issues shares to shareholders of demerged company on a proportionate basis ? Shareholders holding minimum 75% of the value of shares become shareholders of resulting company
?
19th July, 2008
12 of 33
Demerger – Tax aspects
?
Capital Gain Tax – Sec 47(vid)
?
Not a transfer - no liability for capital gains tax in the hands of shareholders of Transferee Co.
?
Deemed Dividend – Sec 2(22)(v) ? Not treated as Deemed dividend. Hence no tax liability for shareholders
TAX BENEFITS
?
Amortisation of expense – Sec 35DD
?
Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, for the purposes of amalgamation or demerger, the assessee shall be allowed a deduction equal to one-fifth of such expenditure for five successive previous years.
Cont.
13 of 33
19th July, 2008
Demerger – Tax aspects (cont..)
?
Cost of Acquisition– Sec 49(2C) & 49(2D) ? Cost of acquisition of shares of the transferee/resulting company will be the amount which bears to the cost of acquisition of shares of the transferor/demerged company, the same proportion as the net book value of assets transferred bears to the net worth of the demerged company immediately before demerger. ? Cost of acquisition of shares of the Demerged Co will be the original cost of shares of Demerged Co after reducing the cost of shares of the Resulting Co as computed above
Cont.
19th July, 2008
14 of 33
Demerger – Tax aspects (cont..)
?
Depreciation on the Assets being transferred
?
WDV in the hands of the demerged company shall be the WDV of the block of assets before demerger less WDV of the assets transferred to the transferee company.
Depreciation to transferor company and transferee company in the year of demerger shall be apportioned in the ratio of the number of days for which the assets were used
Tax Aspects
?
19th July, 2008
15 of 33
Cont.
Demerger – Tax aspects (cont..)
? ?
?
Carry Forward & Set-off Losses– Sec 72A(4) & 72A(5) Business Losses ? Brought forward loss of Demerged undertaking to be carried forward and set off in hands of Resulting company ? Allowed to be carried forward for set off in the hands of the resulting company for the unexpired period Unabsorbed Depreciation – Unlimited Period
19th July, 2008
16 of 33
Subsidiarisation
? ? ?
?
?
?
Subsidiarisation means transferring the business to a wholly owned subsidiary. The transfer can be made either at book value or at fair value. Companies resort to Subsidiarisation when the undertaking needs to be sold but there is no buyer ready to buy all the assets at a given point of time. Under this option business gets transferred to a subsidiary and the parent company continues to hold 100% equity stake in the subsidiary. This option facilitates the process of disinvestment, as only the shares of subsidiary company will have to be handed over when the suitable buyer is found out. This option shifts the control of business from the shareholders to the holding company. Example: S. Kumar's Nationwide Limited transferred its Reid & Taylor division to a subsidiary namely, Reid & Taylor (India) Limited
17 of 33
19th July, 2008
Subsidiarisation – Case Study
In the books of Holding Co.
PARTICULARS Share Capital Reserves & Surplus Loan Funds Total Liabilities
BEFORE
50 150 300 500
(Rs in Cr)
PARTICULARS Share Capital Reserves & Surplus Loan Funds Total Liabilities
AFTER 50
(Rs in Cr)
150 200 400
Fixed Assets
Net Current Assets Total Assets
100
400 500
Fixed Assets
Net Current Assets Investment in subsidiary Total Assets
90
250 60 400
The Division with a Net Book value of 60 crores is transferred to WOS.
19th July, 2008 18 of 33
Subsidiarisation – Case Study (cont..)
In the books of Subsidiary Co.
PARTICULARS Share Capital Loan Funds Total Liabilities AFTER 60 100 160
(Rs in Cr)
Fixed Assets
Net Current Assets Total Assets
10
150 160
19th July, 2008
19 of 33
Slump Sale
?
The term ‘slump sale’ connotes the sale of an entire business undertaking, comprising of various assets net of liabilities relating to the undertaking for a lump sum or ‘slump’ consideration. The consideration may be discharged by issuing shares and/or cash to the Transferor Company.
Example: Grasim sold sponge iron unit to Welspun Power for Rs. 1030 crores.
19th July, 2008 20 of 33
?
Cont.
Slump Sale (cont..)
?
A sale in order to constitute a slump sale must satisfy the following tests:
?
The business has been sold off as a whole and as a going concern at its realisable value The seller has not withdrawn any assets or liabilities from the business sold or the buyer has not rejected any assets or liabilities comprised in the business Materials available on record do not indicate item-wise value of the assets transferred The business or the undertaking should have a separate existence in the books of accounts
21 of 33
?
?
?
19th July, 2008
Slump Sale – Case Study
In the books of Selling Co.
PARTICULARS
Share Capital Reserves & Surplus Loan Funds
BEFORE
50 150 300
(Rs. In cr.)
PARTICULARS
Share Capital Reserves & Surplus Add: Pft. on sale of business
AFTER
50 150 440
(Rs. in cr.)
Loan Funds Total Liabilities
Fixed Assets Net Current Assets Total Assets
200
840 90 250 500
500
100 400 500
Total Liabilities Fixed Assets Net Current Assets Cash & Bank (on sale of business)
Total Assets
840
The Business with the book value of 60 crores sold at 500 crores on slump sale basis. 22 of 33
19th July, 2008
Slump Sale – Case Study (cont.)
In the books of Acquiring Co.
PARTICULARS Share Capital Loan Funds Total Liabilities Fixed Assets Net Current Assets Intangible Assets (Patents, Trademark, Copyrights etc.) Goodwill
19th July, 2008
(Rs. In cr.)
500 100 600 100 150 250 100 600
23 of 33
Total Assets
Capital Reduction
? ?
It is the process of decreasing a company’s shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons such as:
? ?
increasing shareholder value producing a more efficient capital structure.
?
?
After a capital reduction, the number of shares in the company decrease by the reduction amount. In some situations, shareholders receive a cash payment for shares cancelled – but mostly, there is minimal impact on shareholders. Example: BPL Mobile cellular reduced the paid up capital from Rs. 1,262 cr. to Rs. 1,072 cr. The Face value of the shares has been reduced from Rs.100 to Rs. 85.
Cont.
19th July, 2008
24 of 33
Capital Reduction (cont…)
?
Reduction of share capital may be effected in the following ways:
? ?
?
In respect of share capital not paid-up, extinguishing or reducing the liability on any of its shares; Cancel any paid-up share capital, which is lost, or is not represented by available assets. This may be done either with or without extinguishing or reducing liability on any of its Shares; or Pay off the paid-up share capital, which is in excess of the needs of the company. This may be achieved either with or without extinguishing or reducing liability on any of its shares.
Cont.
19th July, 2008
25 of 33
Capital Reduction (cont…)
?
Situations in which a Co. may reduce its capital:
?
? ?
?
Where the capital is unrepresented by assets; Where substantial trading losses have accumulated; Where there are extensive capital losses requiring revaluation of the assets; To return excess cash to its shareholders where there is no likelihood of the cash ever being required for the business
19th July, 2008
26 of 33
Capital Reduction – Case Study
PARTICULARS Share Capital Reserves & Surplus Loan Funds
(Rs. in Cr.)
BEFORE
(Rs. in Cr.)
AFTER
(Face Value Rs. 10)
100 500 400
(Face Value Rs.5)
50 500 400
1,000
950
Fixed Assets
600
600
Net Current Assets
Profit & Loss
350
50 1,000
350
950
27 of 33
19th July, 2008
Buy Back
?
?
?
In common parlance, "Buyback is acquiring its own shares from the existing shareholders by the company.” It means that a company reduces its paid-up capital by buying back its shares held by the shareholders. The company’s decision to buyback is influenced by a host of factors such as: ? the company’s growth opportunities ? sourcing of funds ? optimum allocation of the funds generated
Example: Reliance Infrastructure bought back 61,60,000 shares at Rs. 1,600 per share.
19th July, 2008
28 of 33
Procedure for Buy Back
?
After passing of the special/Board resolution, make a public announcement at the place of the registered office. The public announcement shall specify a date, which shall be "specified date" for the purpose of determining the names of shareholders to whom the letter of offer has to be sent. Give a public notice containing disclosures as specified in Schedule I of the SEBI regulations.
?
?
?
A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.
19th July, 2008 29 of 33
Cont.
Procedure for Buy Back (Cont..)
?
A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock exchanges. The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date.
?
?
The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.
A company opting for buy back through the public offer or tender offer shall open an escrow Account.
?
19th July, 2008
30 of 33
Reasons for Buy Back
?
Reasons for buy back include:
?
? ? ?
?
? ?
putting unused cash to use raising earnings per share helping capital restructuring by way of capital reduction reduced equity base strengthens management control obtaining stock for employee stock option plans or pension plans increasing the value of shares (reducing supply) eliminating any threats by shareholders looking for a controlling stake
19th July, 2008
31 of 33
Buy Back – Case Study
PARTICULARS BEFORE BUYBACK (Rs. In Crores)
(Face Value Rs.10)
ADJUSTMENTS (Rs. In Crores)
AFTER BUYBACK (Rs. In Crores)
(Face Value Rs.10)
Share Capital
Free Reserves Capital Redemption Reserve Loans & Advances Total Liabilities Fixed Assets Net Current Assets Total Assets
100
300 600 1,000 650 350 1,000
(10)
(60) 10 (60) (60) (60)
90
240 10 600 940 650 290 940
1 crores Shares bought back at Rs. 50 premium.
19th July, 2008
33 of 33
doc_350555359.pptx
Demerger & Other Modes of Restructuring
1 of 33
Presentation Overview
?
?
? ? ?
Demerger Subsidiarisation Slump Sale Capital Reduction Buy Back
19th July, 2008
2 of 33
19th July, 2008
Demerger
3 of 34
Demerger - Introduction
?
Demerger contemplates hiving off a division/unit/business of a company into a new/existing company. Demerger involves a vertical split of company, whereby business is transferred on a going concern basis to a new/existing company. This division may either: ? form a new company and operate separately from the original one ? or may get merged into another existing co.
Cont.
4 of 33
?
?
19th July, 2008
Demerger – Introduction
PRE
Shareholders
(Cont…)
POST
Shareholders
Undertaking A
AB Ltd
Undertaking B
Undertaking A
AB Ltd
Undertaking B
B Ltd
19th July, 2008
5 of 33
Reasons for Demerger
? ? ?
Unlocking Shareholder value Streamlining business segments To make financial and managerial resources available for developing other more profitable opportunities Selling unwanted and surplus parts in the business as a restructuring strategy to get rid of sick part of the company
19th July, 2008 6 of 33
?
Demerger – Examples
Examples of Demerger
?
Demerger of Consumer Product division of Cadila healthcare Ltd into Carnation Nutra Analogue Foods Ltd. Demerger of New Chemical Entity Research Unit, a division of Nicholas Piramal India Limited, into NPIL Research & Development Limited on a going concern basis.
?
19th July, 2008
7 of 33
Demerger – Case Study
DEMERGED COMPANY
PARTICULARS
Share Capital Reserves & Surplus Loan Funds Total Liabilities Fixed Assets Net Current Assets Total Assets
Before
100 600 300 1,000 600 400 1,000
After
100 350 200 650 400 250 650
RESULTING COMPANY
40 210 100 350 200 150 350
19th July, 2008
8 of 33
Does breaking up deliver value ?
19th July, 2008
9 of 34
Case Studies of Successful Restructuring
Reliance Demerger Date : January 18, 2006 (in Mn) Name of Company Pre- Demerger Market price No. of shares Market Cap 912.90 1,39,35,08,041 12,72,133 Post- Demerger Market price No. of shares Market Cap 708.46 289.00 43.84 22.61 1,39,35,08,041 1,39,35,08,041 1,39,35,08,041 1,39,35,08,041 9,87,245 4,02,724 61,091 31,507 27,480 15,10,047 18.70%
RIL Reliance Communications ventures Ltd Reliance Energy Ventures Ltd Reliance Capital Ventures Ltd Reliance Natural Resources Limited Total % Increase/(decrease)
19.72 1,39,35,08,041 12,72,133
19th July, 2008
10 of 33
Process of Demerger
? ? ? ? ? ?
?
? ? ? ?
Agreement on Appointed Date Scheme of Arrangement Convening a Board meeting Approval by the Board of Directors Petition to the Court Valuation Stock Exchange approval for listed Companies Meeting of Shareholders/ Creditors Registrar of Companies approval High Court approval Filing of High Court Order with ROC
19th July, 2008
11 of 33
Demerger – Conditions
?
Definition of Demerger – Section 2(19AA)
All the properties and liabilities of the demerged undertaking to be transferred on going concern basis ? Properties and liabilities are transferred at book value ? The resulting company issues shares to shareholders of demerged company on a proportionate basis ? Shareholders holding minimum 75% of the value of shares become shareholders of resulting company
?
19th July, 2008
12 of 33
Demerger – Tax aspects
?
Capital Gain Tax – Sec 47(vid)
?
Not a transfer - no liability for capital gains tax in the hands of shareholders of Transferee Co.
?
Deemed Dividend – Sec 2(22)(v) ? Not treated as Deemed dividend. Hence no tax liability for shareholders
TAX BENEFITS
?
Amortisation of expense – Sec 35DD
?
Where an assessee, being an Indian company, incurs any expenditure, on or after the 1st day of April, 1999, for the purposes of amalgamation or demerger, the assessee shall be allowed a deduction equal to one-fifth of such expenditure for five successive previous years.
Cont.
13 of 33
19th July, 2008
Demerger – Tax aspects (cont..)
?
Cost of Acquisition– Sec 49(2C) & 49(2D) ? Cost of acquisition of shares of the transferee/resulting company will be the amount which bears to the cost of acquisition of shares of the transferor/demerged company, the same proportion as the net book value of assets transferred bears to the net worth of the demerged company immediately before demerger. ? Cost of acquisition of shares of the Demerged Co will be the original cost of shares of Demerged Co after reducing the cost of shares of the Resulting Co as computed above
Cont.
19th July, 2008
14 of 33
Demerger – Tax aspects (cont..)
?
Depreciation on the Assets being transferred
?
WDV in the hands of the demerged company shall be the WDV of the block of assets before demerger less WDV of the assets transferred to the transferee company.
Depreciation to transferor company and transferee company in the year of demerger shall be apportioned in the ratio of the number of days for which the assets were used
Tax Aspects
?
19th July, 2008
15 of 33
Cont.
Demerger – Tax aspects (cont..)
? ?
?
Carry Forward & Set-off Losses– Sec 72A(4) & 72A(5) Business Losses ? Brought forward loss of Demerged undertaking to be carried forward and set off in hands of Resulting company ? Allowed to be carried forward for set off in the hands of the resulting company for the unexpired period Unabsorbed Depreciation – Unlimited Period
19th July, 2008
16 of 33
Subsidiarisation
? ? ?
?
?
?
Subsidiarisation means transferring the business to a wholly owned subsidiary. The transfer can be made either at book value or at fair value. Companies resort to Subsidiarisation when the undertaking needs to be sold but there is no buyer ready to buy all the assets at a given point of time. Under this option business gets transferred to a subsidiary and the parent company continues to hold 100% equity stake in the subsidiary. This option facilitates the process of disinvestment, as only the shares of subsidiary company will have to be handed over when the suitable buyer is found out. This option shifts the control of business from the shareholders to the holding company. Example: S. Kumar's Nationwide Limited transferred its Reid & Taylor division to a subsidiary namely, Reid & Taylor (India) Limited
17 of 33
19th July, 2008
Subsidiarisation – Case Study
In the books of Holding Co.
PARTICULARS Share Capital Reserves & Surplus Loan Funds Total Liabilities
BEFORE
50 150 300 500
(Rs in Cr)
PARTICULARS Share Capital Reserves & Surplus Loan Funds Total Liabilities
AFTER 50
(Rs in Cr)
150 200 400
Fixed Assets
Net Current Assets Total Assets
100
400 500
Fixed Assets
Net Current Assets Investment in subsidiary Total Assets
90
250 60 400
The Division with a Net Book value of 60 crores is transferred to WOS.
19th July, 2008 18 of 33
Subsidiarisation – Case Study (cont..)
In the books of Subsidiary Co.
PARTICULARS Share Capital Loan Funds Total Liabilities AFTER 60 100 160
(Rs in Cr)
Fixed Assets
Net Current Assets Total Assets
10
150 160
19th July, 2008
19 of 33
Slump Sale
?
The term ‘slump sale’ connotes the sale of an entire business undertaking, comprising of various assets net of liabilities relating to the undertaking for a lump sum or ‘slump’ consideration. The consideration may be discharged by issuing shares and/or cash to the Transferor Company.
Example: Grasim sold sponge iron unit to Welspun Power for Rs. 1030 crores.
19th July, 2008 20 of 33
?
Cont.
Slump Sale (cont..)
?
A sale in order to constitute a slump sale must satisfy the following tests:
?
The business has been sold off as a whole and as a going concern at its realisable value The seller has not withdrawn any assets or liabilities from the business sold or the buyer has not rejected any assets or liabilities comprised in the business Materials available on record do not indicate item-wise value of the assets transferred The business or the undertaking should have a separate existence in the books of accounts
21 of 33
?
?
?
19th July, 2008
Slump Sale – Case Study
In the books of Selling Co.
PARTICULARS
Share Capital Reserves & Surplus Loan Funds
BEFORE
50 150 300
(Rs. In cr.)
PARTICULARS
Share Capital Reserves & Surplus Add: Pft. on sale of business
AFTER
50 150 440
(Rs. in cr.)
Loan Funds Total Liabilities
Fixed Assets Net Current Assets Total Assets
200
840 90 250 500
500
100 400 500
Total Liabilities Fixed Assets Net Current Assets Cash & Bank (on sale of business)
Total Assets
840
The Business with the book value of 60 crores sold at 500 crores on slump sale basis. 22 of 33
19th July, 2008
Slump Sale – Case Study (cont.)
In the books of Acquiring Co.
PARTICULARS Share Capital Loan Funds Total Liabilities Fixed Assets Net Current Assets Intangible Assets (Patents, Trademark, Copyrights etc.) Goodwill
19th July, 2008
(Rs. In cr.)
500 100 600 100 150 250 100 600
23 of 33
Total Assets
Capital Reduction
? ?
It is the process of decreasing a company’s shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons such as:
? ?
increasing shareholder value producing a more efficient capital structure.
?
?
After a capital reduction, the number of shares in the company decrease by the reduction amount. In some situations, shareholders receive a cash payment for shares cancelled – but mostly, there is minimal impact on shareholders. Example: BPL Mobile cellular reduced the paid up capital from Rs. 1,262 cr. to Rs. 1,072 cr. The Face value of the shares has been reduced from Rs.100 to Rs. 85.
Cont.
19th July, 2008
24 of 33
Capital Reduction (cont…)
?
Reduction of share capital may be effected in the following ways:
? ?
?
In respect of share capital not paid-up, extinguishing or reducing the liability on any of its shares; Cancel any paid-up share capital, which is lost, or is not represented by available assets. This may be done either with or without extinguishing or reducing liability on any of its Shares; or Pay off the paid-up share capital, which is in excess of the needs of the company. This may be achieved either with or without extinguishing or reducing liability on any of its shares.
Cont.
19th July, 2008
25 of 33
Capital Reduction (cont…)
?
Situations in which a Co. may reduce its capital:
?
? ?
?
Where the capital is unrepresented by assets; Where substantial trading losses have accumulated; Where there are extensive capital losses requiring revaluation of the assets; To return excess cash to its shareholders where there is no likelihood of the cash ever being required for the business
19th July, 2008
26 of 33
Capital Reduction – Case Study
PARTICULARS Share Capital Reserves & Surplus Loan Funds
(Rs. in Cr.)
BEFORE
(Rs. in Cr.)
AFTER
(Face Value Rs. 10)
100 500 400
(Face Value Rs.5)
50 500 400
1,000
950
Fixed Assets
600
600
Net Current Assets
Profit & Loss
350
50 1,000
350
950
27 of 33
19th July, 2008
Buy Back
?
?
?
In common parlance, "Buyback is acquiring its own shares from the existing shareholders by the company.” It means that a company reduces its paid-up capital by buying back its shares held by the shareholders. The company’s decision to buyback is influenced by a host of factors such as: ? the company’s growth opportunities ? sourcing of funds ? optimum allocation of the funds generated
Example: Reliance Infrastructure bought back 61,60,000 shares at Rs. 1,600 per share.
19th July, 2008
28 of 33
Procedure for Buy Back
?
After passing of the special/Board resolution, make a public announcement at the place of the registered office. The public announcement shall specify a date, which shall be "specified date" for the purpose of determining the names of shareholders to whom the letter of offer has to be sent. Give a public notice containing disclosures as specified in Schedule I of the SEBI regulations.
?
?
?
A draft letter of offer shall be filed with SEBI through a merchant Banker. The letter of offer shall then be dispatched to the members of the company.
19th July, 2008 29 of 33
Cont.
Procedure for Buy Back (Cont..)
?
A copy of the Board resolution authorising the buy back shall be filed with the SEBI and stock exchanges. The date of opening of the offer shall not be earlier than seven days or later than 30 days after the specified date.
?
?
The buy back offer shall remain open for a period of not less than 15 days and not more than 30 days.
A company opting for buy back through the public offer or tender offer shall open an escrow Account.
?
19th July, 2008
30 of 33
Reasons for Buy Back
?
Reasons for buy back include:
?
? ? ?
?
? ?
putting unused cash to use raising earnings per share helping capital restructuring by way of capital reduction reduced equity base strengthens management control obtaining stock for employee stock option plans or pension plans increasing the value of shares (reducing supply) eliminating any threats by shareholders looking for a controlling stake
19th July, 2008
31 of 33
Buy Back – Case Study
PARTICULARS BEFORE BUYBACK (Rs. In Crores)
(Face Value Rs.10)
ADJUSTMENTS (Rs. In Crores)
AFTER BUYBACK (Rs. In Crores)
(Face Value Rs.10)
Share Capital
Free Reserves Capital Redemption Reserve Loans & Advances Total Liabilities Fixed Assets Net Current Assets Total Assets
100
300 600 1,000 650 350 1,000
(10)
(60) 10 (60) (60) (60)
90
240 10 600 940 650 290 940
1 crores Shares bought back at Rs. 50 premium.
19th July, 2008
33 of 33
doc_350555359.pptx