Business Description

A north India-based listed company (C1) is engaged in the business of FMCG products of beverages and the like. Some of the products got caught up in litigations and controversies from consumers with some harsh restrictions from central and state government. Therefore C1 diversified into real estate and investments in a big way having more than 85% of assets and profitability coming from the said business. The positive macroeconomic conditions made the real estate business portfolio grow substantially.

Key Problems & Issues

C1 was not able to create value for its shareholders due to following reasons:

  • The company’s product portfolio consisted some of the products which were prone to litigation and also a ban on a growth of those products by various state governments.
  • Not getting proper Valuation for its real estate business as many investors were put off due to the problems of other business resulting into substantial lower valuation as compared to its peers.
  • Inability to raise funds (debt or equity) for its real estate business.
  • Inability to match the risk and return profile of the business vis-à-vis that of a major chunk of the small investors.

 Strategic objectives

The strategic objectives of the promoter include:

  • To give exit route to the shareholders to enable them to rationalize their investments.
  • To enable potential investors to bring funds in the real investment business.
  • Give value to small shareholders by paying cash to them for risky business taking it to complete private domain till numerous legal issues were sorted out.
  • Not to keep risky business listed.
  • To have a structure which should be smooth and tax efficient both for the company and its shareholders.
  • Keep company on a fast growth track and in line with capital market regulations.

Options Analysed

To restructure the business and have two businesses in two different legal entity, the following options were considered:

  1. Slump sale
  2. Demerger

The option of delisting C1 was rejected as it would be too costly for the promoters since it had to be done at exit price determined under reverse book building. Further as even real estate business would also be placed in unlisted entity, it would be difficult to raise huge funds

Critical factors considered for Restructuring

  • The scheme of Restructuring could be acceptable to small shareholders.
  • Valuation of the entity with the security and Real Estate investment enhanced.
  • The existing shareholder could exit with minimum cost to the company.
  • Rationalized cash outflow on the part of company matching with the inflow of the company and also time value of money for the shareholders.
  • Scheme of Restructuring could be acceptable to small shareholders

Our Recommendation

Considering the basic objective of not to keep risky business listed and to give exit option to the small shareholders, demerging the risky business to a separate legal entity was the most desirable. Demerger of real estate business would have left the risky business listed.

In the light of the exit option to be given to the shareholders, the shareholders of the company had the option to choose equity or redeemable preference shares, which also served the objective of the scheme being not too expensive.

For Valuation purpose, Net Asset Method was considered.

Issues Addressed

The scheme achieved all major objectives in one go like

  • Give exit to shareholders FROM FMCG business
  • Have listed vehicle to raise funds for real estate business with valuation comparable to its peers
  • Implement transaction with complete transfer of all past legal liabilities
  • Minimum time period and transaction cost

Our Service Offerings

Mergers and AcquisitionsDivestment Advisory ServicesJoint VenturesFinancial Re-engineering

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Financial re-engineering involves the radical redesign of core business processes to achieve dramatic improvements in return on investments. The company, may, in the long run, have some assets which are surplus or not being utilized by the core business. The effective utilization of those assets / funds can increase value for stakeholders substantially. HU Consultancy offers financial re-engineering and debt restructuring …… Know More…

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