1. Corporate Re-structuring MCMAT Perumbavoor CA.Liju.V.Rajan Kolath Managing Partner – Kolath & CO, CAs Director, Kolath Financial Consulting Pvt. Ltd.

2. Corporate Re-structuring The more extensive the restructuring, the greater the growth prospects; the stronger the growth, the greater the need for restructuring. Shrink to grow and vice versa.

3. Corporate Re-structuring Corporate restructuring is one of the most complex and fundamental phenomena that management confronts. Two opposite strategies from which to choose: to diversify or to refocus on its core business.

4. Corporate Re-structuring Corporate restructuring is an episodic exercise:  Pattern of ownership and control  Composition of liability  Asset mix of the firm.

5. Corporate Re-structuring Corporate restructuring encompasses two distinct groups of activities; Business Restructuring: Expansions – including mergers and consolidations, tender offers, joint ventures, and acquisitions; Contraction – including sell offs, spin offs, equity carve outs, abandonment of assets, and liquidation. Financial Restructuring: Value Re-engineering - Subsidiarisation, De- subsidiarisation. Ownership and control – including the market for corporate control, stock repurchases program, exchange offers and going private;

6. Corporate Re-structuring It is a comprehensive process by which a company can consolidate its business operations and strengthen its position for achieving the desired objectives:  Synergetic  Competitive  Successful It involves significant  re-orientation  re-organization or  realignment of assets and liabilities of the organization through conscious management action to improve future cash flow stream and to make more profitable and efficient.

7. Corporate Re-structuring Does Restructuring create value? The key principle behind corporate restructuring is to create shareholder value over and above that of the sum of the parts. Corporate Restructuring creates value only if: Value of the combined entity as a result of the corporate restructuring is greater than the sum of value of individual companies. C > A + B Value creation C<= A + B Value destruction

8. Corporate Re-structuring Purpose of Corporate Restructuring - To enhance the share holder value, The company should continuously evaluate its:  Portfolio of businesses,  Capital mix,  Ownership &  Asset arrangements to find opportunities to increase the share holder’s value. o To focus on asset utilization and profitable investment opportunities. o To reorganize or divest less profitable or loss making businesses/products. The company can also enhance value through capital Restructuring, it can innovate securities that help to reduce cost of capital.

9. Corporate Re-structuring Characteristics of Corporate Restructuring –  To improve the company’s Balance sheet, (by selling unprofitable division from its core business).  To accomplish staff reduction ( by selling/closing of unprofitable portion).  Changes in corporate management.  Sale of underutilized assets, such as patents/brands.  Outsourcing of operations such as payroll and technical support to a more efficient 3rd party.  Moving of operations such as manufacturing to lower-cost locations.  Reorganization of functions such as sales, marketing, & distribution.  Renegotiation of labor contracts to reduce overhead.  Refinancing of corporate debt to reduce interest payments.  A major public relations campaign to reposition the company with consumers.

10. Corporate Re-structuring Restructuring can be explained as Continuous adaption of a corporation‟s internal structure to a changing external environment - defensive restructuring Complex systematic change of a corporation‟s department or business activity -strategic restructuring

11. Corporate Re-structuring Reasons for restructuring of a company are: Crisis –company is in a crisis which is threatening its very own existence,profitability or stability and this unappreciated situation needs to be solved; Problems –company is forced to solve fragmental problematic situations, thatarise from daily operations and in case of ignoring of these problems, theymight lead to the rise of other, much more complex problems–crisis; Prevention –company is trying to avoid and prevent potential threats in the future; Opportunity –company is trying to benefit from chances to gain a competitive advantage and strengthen its position in the market

12. Corporate Re-structuring Stages of the analysis The following stages should be included within the analysis Stage 1: Basic company information Stage 2: Economic analysis Stage 3: Social analysis Stage 4: Production/Operational analysis Stage 5: Financial analysis Stage 6: Findings of the analysis strengths and weaknesses

13. Corporate Re-structuring Phases of the restructuring process 1. Diagnostic phase: diagnosis of the company through “strategic appraisal” (± four months) 2. Planning phase: preparation of the “strategic improvement plan” (businessplan, ± two months) 3. Implementation phase: restructuring, including monitoring of progress and revisions of previous phases (± eighteen months)

14. Corporate Re-structuring Hurdles of Business Restructuring: Inadequate focus and commitment of top management towards the restructuring Resistance to change Lack of involvement of employees Poor planning Resource Availability Cost and time Poor communication Culture

15. Corporate Re-structuring Methods of Valuation  Book Value  Liquidation Value  Discounted Future Cash Flow or Net Present Value Approach  Continuing Value  Adjustements to DCF Enterprise Value  P/E Multiples  EBITA Multiples

16. Corporate Re-structuring 16 Value Creation through listing of distinct businesses Objective  To list the shares of subsidiary company through allotment of shares of subsidiary company to the shareholders of parent company pursuant to a scheme of arrangement. Stake held Issue of consideration X Co. (Parent ) Shareholders Y Co. (Subsidiary ) 100% Listed Unlisted X Co. (Parent ) Shareholders Y Co. (Subsidiary ) Listed Distribution of shares of Y Co. to the shareholders of X Co. pursuant to a scheme of arrangement Single Business Entity X Co. (Parent ) Shareholders 100% Liste d X Co. (Parent ) Shareholders Liste d Distribution of shares of A, B, & C Co. to the shareholders of X Co. pursuant to a scheme of arrangement Multiple Business Entity A Co. (Subsidiary) Tea business Unliste d B Co. (Subsidiary) Steel Business C Co. (Subsidiary) Telecom Business Unliste d A Co. (Subsidiary) Tea business Liste d B Co. (Subsidiary) Steel Business C Co. (Subsidiary) Telecom Business Liste d 100%

17. Corporate Re-structuring A Alternative Routes Formation of a special purpose company (SPV) – A 100% subsidiary of parent company Transfer investments (shares of Y Co.) from parent company to SPV pursuant to a scheme of arrangement and get shares of SPV listed Alternative 1A - Merge SPV into Y Co. at a later point in time and get Y Co. shares listed or Alternative 1B – Merge Y Co. into the SPV at a later point in time, to be decided depending on tax and cost efficiency. Alternative 2 –Let only SPV remain listed without any merger. Alternative1 is preferred purely from an administrative convenience rather than from a shareholder value perspective. Formation of SPV Transfer of Investments to SPV* Parent Co SPV Shareholders Listed Y Co Issue of Shares in Consideration Transfer of investment Parent Co SPV Shareholders Listed Alternative 1A Y Co Listed Parent Co SPV Shareholders Listed Alternative 1B Y Co Listed Unlisted Issue of Shares in Consideration Parent Co SPV Shareholders Listed Unlisted Y Co Unlisted -Merge SPV into Y Co, and get Y Co. shares listed -As consideration Y Co issues shares to shareholders of SPV i.e. Parent Co and its shareholders -Merge Y Co, into SPV -Investment of SPV in Y Co will get cancelled. No further shares will be issued 100% SPV to merge into Y Co. Y Co. to merge into SPV Alternative 1

18. Corporate Re-structuring 18 Case Study - Nicholas Piramal India Ltd NPIL GGPL Scheme of Arrangement between Nicholas Piramal India Ltd. (NPIL) and Kojam Fininvest Ltd. (KFL) for transfer of 53.76% stake of Gujarat Glass Private Ltd. (GGPL) held by NPIL to KFL Appointed Date – 01 st July 2003, Effective Date – 22 nd December 2003 Shareholders 53.76% Listed Unlisted Prior to Scheme of Arrangement NPIL GGPL Shareholders 53.76% Listed Unlisted Prior to the Appointed Date KFL Unlisted 100% KFL was incorporated on 30 th June 2003 with a paid up capital of Rs. 5 Lakhs as a wholly owned subsidiary of NPIL NPIL GGPL Shareholders 53.76% Listed Unlisted Pursuant to a Scheme of Arrangement KFL Listed 0.5% NPIL transferred its stake in GGPL to KFL pursuant to a scheme of arrangement at book value KFL issued its shares to the shareholders of NPIL in the ratio of 1: 4 as consideration of such transfer and got listed Issue of Shares in Consideration NPIL GGL* Shareholders Listed KFL Merged into GGL in 2007 KFL was merged into GGL in 2007 pursuant to a scheme of Amalgamation The shares of GGL held by KFL were cancelled pursuant to such amalgamation GGL issued its shares to the shareholders of KFL in the ratio of 1:1 GGL shares were listed in February 2008 *The company was converted into a public ltd. company in March 2007

19. Corporate Re-structuring Case Study - Nicholas Piramal India Ltd Pre-Demerger EQ ( In Crs. )38 Price-June0362 Market Cap.1,177 Sensex3,793 Post-Demerger NICHOLAS PIRAMAL EQ ( In Crs. )38 Listing Price130 Nicholas Piramal - Market Cap.2,470 Sensex4,709 KFL EQ ( In Crs. )10 Listing Price40 Market Cap.40 Sensex4,709 Total Market Cap. On Demerger2510 Incremental Market Cap 1,333 % Wealth Creation113.3% Present Market Cap. Nicholas Piramal @ 2354,910 GGL @ 6868 Total4,978 Sensex (Nov4, 2008)10,631 Market Cap ( x )4.2

20. Corporate Re-structuring 20 ASSETS Building at Goa Shares in Reliance Energy Reliance Power Hirma Power Pvt Ltd Jayamkondam Power Pvt Ltd Rleiance Thermal Energy Pvt Ltd Liabilities Related Loans Reliance Industries Ltd Coal based energy Undertaking Reliance Industries Ltd Shareholders ASSETS Building at Bandra (E), Mumbai Shares in Reliance Patalganga Power Ltd Liabilities Related Loans ASSETS Building in New Delhi Shares in Reliance Capital Reliance General Insurance Reliance Life Insurance Liabilities Related Loans ASSETS Building, Plant & Machinery, Vehicles and Equipment located at various locations Receivables for capital leases Shares in Reliance Communication Infrastructure Reliance Telecom Reliance Infocomm World Tel holding Ltd Preference shares of Reliance Telecomm Liabilities Related Loans Gas based energy Undertaking Financial Services Undertaking Telecom Undertaking Remaining Undertaking Reliance Energy Ventures Ltd Reliance Natural Resources Ltd (formerly Global Fuel Management Services Ltd.) Reliance Capital Ventures Ltd Reliance Communications Ventures Ltd Petrochemicals, Oil & Gas, Textiles and other business As per the Scheme of De-merger, business of RIL was segregated into five undertakings as illustrated below. These undertakings were hived off into four subsidiaries. Each of these subsidiaries issued its shares to the shareholders of RIL in the ratio of 1:1 Appointed date – 01st September 2005, Effective date – 21st December 2005, Record date – 25th January 2005 Case Study - Reliance Industries Ltd

21. Corporate Re-structuring 21 RIL RCL Scheme of Arrangement between Reliance Industries (RIL) and Reliance Capital Ventures Ltd. (RCVL) for demerger of financial services undertaking to RCVL Scheme of Arrangement between RCVL and Reliance Capital Ltd (RCL) for amalgamation of RCVL with RCL Demerger Scheme - Appointed Date – 01st September 2005, Effective Date – 21nd December 2005 Shareholders 42.70% Listed Prior to Schemes of Arrangement RIL RCL Shareholders 42.70% Listed Pursuant to Scheme of De-merger RCVL Listed De-merger of Financial Services Undertaking -RCVL was incorporated on 3 rd September 2004 and the financial services undertaking of RIL was transferred through the scheme of demerger to RCVL -RCVL issued its shares to the shareholders of RIL in the ratio of 1:1 as consideration of such transfer -RCVL got listed through the scheme of demerger Issue of Shares in Consideration RIL RCVL Shareholders Listed Pursuant to Scheme of Amalgamation RCL -RCVL was merged into RCL in 2006 pursuant to a scheme of Amalgamation -RCVL shareholding in RCL was cancelled pursuant to such amalgamation -RCVL shareholders received shares of RCL in the ratio of 5:100 Listed Issue of Shares in Consideration Case Study - Reliance Industries Ltd (Contd) RCVL merged into RCL

22. Corporate Re-structuring Case Study - Reliance Industries Ltd (Contd) Scheme of Arrangement between Reliance Industries (RIL) and Reliance Natural Resources Ltd. (RNRL) for de-merger of gas based energy undertaking to RNRL De-merger Scheme - Appointed Date – 01st September 2005, Effective Date – 21nd December 2005 Prior to Scheme of Arrangement - RNRL was incorporated on 24 th April 2000 with a paid up capital of Rs. 5 Lakhs as a wholly owned subsidiary of RIL Pursuant to a Scheme of De-merger -RNRL issued its shares to the shareholders of RIL in the ratio of 1:1 as consideration of such transfer -RNRL shares were be listed pursuant to such scheme -RIL Shareholding in RNRL was cancelled pursuant to the scheme RIL RNRL Shareholders Listed Reliance Patalganga Power Ltd Issue of Shares in Consideration RIL RNRL Shareholders Listed RIL RNRL Shareholders Listed Unlisted Reliance Patalganga Power Ltd Unlisted 100% Listed Reliance Patalganga Power Ltd 100%

23. Corporate Re-structuring Case Study - Reliance Industries Ltd (Contd) Pre-Demerger RIL EQ ( In Crs. )1,394.15 Price-Jan '06850 Market Cap.118,490 Sensex10,370 RELIANCE CAPITAL EQ ( In Crs. )245.63 Price-Jan '06450 Market Cap.9,950 Sensex10,370 Post-Demerger RELIANCE Inds. EQ ( In Crs. )1394.2 Listing Price730 Market Cap.101,762 Sensex10,735 RELIANCE COMMUNICATION EQ ( In Crs. )611.5 Listing Price300 Market Cap.36,660 Sensex10,735 RNRL EQ ( In Crs. )611.57 Listing Price17.5 Market Cap.2,269 Sensex10,565 RELIANCE CAPITAL Listing Price500 Market Cap.10,436 Sensex10,735 Total Market Cap. - Demerger151,127 Incremental Market Cap.22,687 % Wealth Creation19.1% Present Market Cap. RIL @1455.20229,018 RCOM @25051,704 RNRL @569,088 RCAP @74018,154 Total307,964 Sensex (Nov4, 2008)10,631 Market Cap ( x ) - Since Jan'062.6

24. Corporate Re-structuring KOLATH Financial Consulting Pvt. Ltd. Consulting 360 KOLATH and CO Chartered Accountants Chennai, Bengaluru, Kochi T h a n k Y o u

25. Corporate Re-structuring A