Questions and Answers
How did KPC shareholders receive shares after the restructuring?
What was the share value of KTL before the restructuring?
Which company was merged with Atul Products Ltd?
What happened to the share value of KPC after the merger?
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Which merger is noted as the largest amalgamation in the country's corporate history?
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What was the exchange ratio for the merger between RPPL and RPEL?
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After how long was KTL changed to KPC Limited following the restructuring?
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What was the result of the merger between Reliance Polypropylene Ltd and Reliance Polyethylene Ltd?
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What is the estimated asset value resulting from the Ambani group companies merger?
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What was KTL's status in the market before its restructuring?
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Study Notes
Indian Economic Scenario
- Economic liberalisation in India began in the early 1990s, shifting towards a more market-oriented economy.
- Before liberalisation, the environment was unfavourable for mergers and takeovers, with 121 mergers and 37 unsuccessful bids between 1988-1992.
- Horizontal mergers became prevalent, comprising 25% in 1988, increasing to 50% in 1991 and 65% in 1992.
- Companies Act of 1956 facilitated friendly amalgamations, while the Income-tax Act of 1962 allowed carry-forward of losses under section 72A.
Barriers to Takeovers in India
- Financial institutions had significant stakes in companies, limiting takeover opportunities.
- Industrial licensing processes were cumbersome.
- Sections 372 and 108 of Companies Act restricted equity purchase by companies, while MRTP Act sections discouraged mergers.
Corporate Raids
- Notable hostile takeovers have included NRIs attempting raids, with significant outcomes such as:
- Swaraj Paul and Sethia groups attempted unsuccessfully on Escorts Ltd and DCM.
- Hindujas successfully took control of Ashok Leyland and Ennore Foundries.
- Chhabria group acquired stakes in multiple firms, including Shaw Wallace and Dunlop India.
- Indian industrial groups also engaged in successful takeovers, such as:
- Goenkas taking over Ceat Tyres and Herdillia Chemicals.
- Mahindra & Mahindra acquiring Allwyn Nissan and an automotive pressing unit from Guest Keen Williams Ltd.
Rehabilitation Takeovers
- BIFR (Board for Industrial and Financial Reconstruction) facilitates takeovers of sick units through institutional mergers.
- Terms of such takeovers are set by creditor institutions and banks, seeking recovery and restructuring.
MRTP Mergers
- Between 1980 and 1989, 32 amalgamations and 52 takeovers were approved under MRTP Act, involving major companies like Brooke Bond India and Larsen & Toubro.
Reverse Mergers
- Reverse mergers allow sick units to merge with healthy companies for tax benefits, where the healthy unit absorbs losses of the sick unit.
- Section 72A of I.T. Act enables this process, allowing carried forward losses to offset profits of the healthy unit.
- Successful reverse mergers include partnerships like Ahmedabad Laxmi Mills with Arvind Mills and Reliance with Sidhpur Mills.
Outcomes of Merging Sick and Healthy Units
- Post-merger, the sick unit often adopts the healthy unit's name and benefits from restructuring.
- Example: Kirloskar Pneumatics Ltd (healthy) merged with Kirloskar Tractors Ltd (sick) leading to KTL rebranding to KPC Limited after restructuring.
- Reliance Industries became a prominent case in mergers, with RPL merging with RIL, creating significant corporate assets over Rs. 5000 crores.
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Description
Explore the significant changes in the Indian economic landscape following liberalisation in the early 1990s. This quiz covers corporate raids, rehabilitation takeovers, and various merger types, providing insights into the dynamics of the Indian economy during this transformative period.
