Structuring Aspects in Merger & Acquisition

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BUSINESS RE-STRUCTURING
- CA HARESH SHAH
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INTERNAL RE-STRUCTURING

• Means
• Examine the present structure of the group
  businesses
• Legal- Company, WoS, LLP
• Financial- leveraging, flexibility of
  financing, expansion, Promotor group shareholding
  and Family Succession
• Tax optimization including transfer pricing
  regulations

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INTERNAL RE-STRUCTURING

• Future plan- IPO, JV, alliance and exit
• Commercial- Synergies, focused management ,
  risk and return profile, cost optimization and
  unlocking value
• Return to shareholders-Dividend and Buy Back

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OPTIONS AVAILABLE
Apart from above, there are various other options
available in restructuring.
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Case Study- Godrej Group
6
ABOUT GODREJ GROUP

• Recently, Godrej Group consolidated Godrej
  Industries Limiteds (GIL) interest in Godrej
  Vikhroli Properties LLP (GVP LLP) (a joint
  venture entity of Godrej Properties Limited and
  Godrej Industries Limited) with the Godrej
  Properties Limited (GPL).
• Godrej Vikhroli Properties LLP is incorporated in
  2011, a limited liability partnership between GPL
  and GIL to develop an integrated township project
  known as The Trees consisting of residential
  and commercial developments, planned over
  approximately 34 acres of land in Vikhroli to be
  build in 3 phases. GPL has 60 share in the LLP
  while GILs share is 40.

GIL GPL
India's leading manufacturer of oleo chemicals and makes more than a hundred chemicals for use in over two dozen industries. Real estate development arm of the Godrej Group. It is a subsidiary of Godrej Industries Limited.
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EXISTING STRUCTURE

• 
  

GIL
Why Restructuring- Godrej Industries Limited
wants to exit from the project The Trees
40
GVP LLP
56.41
60
GPL
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THE RE-STRUCTURING

• 
  

The restructuring steps as follows Step 1-
GIL to formed a Special Purpose Vehicle (SPV) GIL
Vikhroli Real Estate Limited (GVREL) as a wholly
owned subsidiary of GIL. Step 2- GVREL will
enter as partner in GVP-LLP with 40 share and
simultaneously GIL will retire itself from
GVL-LLP. Step 3- GVREL will get merged with
GPL.
SPV
Step I
GIL
GVREL
100
Step III
40
56.41
Step II
GPL
GVP LLP
60
- New company incorporated..
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WHY SUCH STRUCTURE

• GIL formed Special Purpose Vehicle (SPV) GIL
  Vikhroli Real Estate Limited and then this to be
  merged in GPL. There can be 2 main reasons for
  doing so-
• To make Transaction
• Tax neutral for GIL as shareholder of GPL
• Cash neutral for GPL

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GAIN TO GODREJ GROUP

• Exit for GIL from non-core business.
• Remaining two phases profit will be booked by
  GPL alone.
• Promoters holding in GPL will increase to 76.86
  from current level of 74.91.
• GIL/Promoters are likely to get about INR 145
  crore from selling their 1.86 stake tax free .

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Case Study- Adani Group
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ABOUT ADANI GROUP

• Diversified industrial conglomerate Adani Group
  restructured its business in which the public
  listed power generation and ports firm spliced
  out of the flagship company Adani Enterprises Ltd
  (AEL) while the privately held power transmission
  unit be listed as a separate firm.
• AEL decides to restructure four major businesses
• PORT BUSINESS Operated through Adani Ports and
  Special Economic Zone Limited (APSEZL), in which
  AEL was holding 74.99 stake.
• POWER BUSINESS Operated through Adani Power
  Limited (APL), in which AEL was holding 68.99
  stake.
• TRANSMISSION BUSINESS Adani Transmission Limited
  (ATL), WoS, through which the group is operating
  its Transmission business.
• COAL BUSINESS Adani Mining Private Limited
  (AMPL), a wholly owned subsidiary of AEL to
  undertake activities relating to development and
  operation of domestic coal mine.

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PRE RE-STRUCTURING STRUCTURE OF ADANI GROUP
68.99
100
100
100
100
74.99
100
50
100
65
100
100
9.09
90.91
Before Re-Structuring, equity shares of AEL,
APSEZL and APL were listed on BSE NSE.
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THE RE-STRUCTURING

• Transaction I
• Demerger of the Port Undertaking of AEL
  comprising the undertaking, businesses,
  activities, operations, assets and liabilities
  pertaining to Belekeri Port and investment of AEL
  in APSEZL into APSEZL.
• Transaction II
• Demerger of the Power Undertaking of AEL
  comprising the undertaking, businesses,
  activities, operations, assets and liabilities
  pertaining to the 40MW Bitta Solar Project and
  investment of AEL in APL into APL.
• Transaction III
• Demerger of the Transmission Undertaking of AEL
  comprising the undertaking, businesses,
  activities, operations, assets and liabilities
  relating to the Mundra- Zedra transmission line
  and investment of AEL in ATL into ATL. ATL to be
  listed on BSE Limited and National Stock Exchange
  of India Limited pursuant to the scheme.
• Transaction IV
• Merger of AMPL into AEL.

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POST RE-STRUCTURING STRUCTURE OF ADANI GROUP

100
100
100
50
65
100
100

• AEL, APSEZL, APL and ATL have their equity shares
  listed on BSE and NSE.
• AEL now is engaged in Mining, Trading, Agro
  Product and Gas Oil businesses. Adani Global
  Limited, Adani Agrifresh Limited and Adani Gas
  Limited are subsidiaries of AEL while Adani
  Global FZE Adani Global pte are step down
  subsidiaries of AEL.
• Adani Wilmar Limited Adani Welspun Limited are
  the Joint Ventures of AEL.

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WHY RE-STRUCTURING

• Each of the varied businesses are distinct in
  terms of
• Potential for growth and profitability
• Nature of risk and competition
• Different level of capital
• Direct ownership of operational businesses
• Increase the valuations
• Shareholders will be having the flexibility to
  remain invested in one or more of the businesses

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VALUE CREATION

• Let us try to calculate gain to the shareholder

Particulars Amount
Share price of AEL before demerger announcement i.e on 28.01.2015 557
Todays Price i.e. on 19.08.2015
AEL 86
APSEZL (368 1.4123) 520
APL (271.8596) 50
ATL 40
Adjusted price of AEL 696
Gain in prices 139 (24.95)
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Case Study- Aditya Birla Nuvo
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ABOUT ADITYA BIRLA GROUP

• Aditya Birla groups conglomerate Aditya Birla
  Nuvo Limited (ABNL) announced consolidation of
  its branded apparels businesses under its listed
  subsidiary - Pantaloons Fashion Retail Limited
  (PFRL). Acquired in 2012 from Future group
• Presently, the apparels retail businesses of the
  Aditya Birla group are housed under three
  separate entities i.e. ABNL, Madura Garments
  Lifestyle Retail Company Limited (MGLRCL) and
  PFRL. ABNL has two division Madura Fashion
  Lifestyle and Jaya shree textile.
• PFRL is among the top 3 large format fashion
  retailers and the largest branded womenswear
  retailer.
• MGLRCL, WoS of ABNL, is the largest premium
  branded apparel player in India. Its premium
  brands Louis Philippe, Van Heusen, Allen Solly
  and its popular brand - Peter England, are
  leaders in their respective categories.

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PRE RE-STRUCTURING STRUCTURE
Aditya Birla Group
Public
58.30
41.70
100
Branded Apparels
72.62
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THE TRANSACTION

• a

ABNL
MGLRCL
100
Divisions
Divisions
Demerger of two divisions
Madura Fashion Lifestyle
Madura Lifestyle
Jaya Shree
Textile
PFRL
72.62
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THE TRANSACTION

• Transaction Steps-
• Step I- Demerger of Madura Fashion (division of
• ABNL) into PFRL.
• Step II- Demerger of Madura Lifestyle (division
  of
• MGLRCL) into PFRL.
• As result of re-structuring, PFRL will issue
  shares to
• the shareholders of ABNL. The existing base of
  92.8mn
• Shares of PFRL will expand to more than 770 mn.
• Post Re-structuring ABNL stake will come down to
  9.06
• from 72.62 resulting into losing of control over
  PFRL.

Aditya Birla Group
ABNL
Public
9.06
51.10
39.84
Pantaloons/ABFRL Madura FL Pantaloons Madura
Lifestyle
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WHY RE-STRUCTURING

• Consolidation of lifestyle business under one
  roof
• Synergies of operation and cost savings in terms
  of size
• Entire spectrum of fashion
• Madura will get exposure to women wear
• Promoter group holding in PFRL.

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VALUE CREATION

• Let us try to calculate gain to the shareholder

Particulars Amount
Share price of Aditya Birla Nuvo before demerger announcement i.e on 30.04.2015 1570
Share price of Pantaloons before demerger announcement i.e on 30.04.2015 114
Todays Price
Aditya Birla Nuvo (52 week high) 2335
Pantaloons 222
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THANK YOU
About the Author He is a Chartered Accountant
with over three decades of experience in Tax
Consultancy and Audit Advisory. He has over 2
decades of experience in Corporate Restructuring
with expertise in Business Strategy and Corporate
Taxation. He is also an alumni of Harvard
Business School. To Know more visit
www.hareshshah.com
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have been taken from google. Share prices are
taken from bse.
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