Stressed Assets Structuring - huConsultancy

1. Stressed Assets Structuring Company Description C1 is a western Maharashtra based company, engaged in the business of trading in bearings and valves, transmission products, electronic industrial automation products and manufacturing of various types of electronic automation products, timers, sensors etc. Over a period of time the company has developed dedicated trading division with clear understanding of further segregating the trading division to focus on business based on customer and product profile and geographical locations such as “Retail Trading division” (RTD) supplying various consumables and stores items like bearing, V-belts etc as counter sales in small lots to industrial consumers prominent markets in Maharashtra, India, “Mumbai Trading division” (MTD) mainly catering to traders and semi-wholesalers in Mumbai Market on wholesale and semi-wholesale basis and “Remaining Business” (RB) consisting of agencies and dealerships of various manufacturers and supply to various engineering and sugar factories in prominent cities in Maharashtra as OEM supplier dealing in products like, ball bearings, industrial valves and industrial rubber products. Further, there is a division known as Electronic Automation Division i.e. Electronic Division (ED) which consists of all facilities in a prominent city in Maharashtra, India for manufacturing and assembling of the infrared sensing system, timer, encoder etc. with foreign collaboration. The sourcing office and trading activities of all electronic parts are in Mumbai C2 is one of the group company exclusively focused on the export of all types of engineering goods. The group has other companies such as C3, C4 and C5 in a similar line of business but catering to a limited geographical area and customers. The group is managed by four sons of the founder Key Problems, Issues & Challenges Managing growth across all the business under one roof was a challenge Strategically, the businesses should not lose importance while exercising the corporate restructuring. Change in management and ownership control of various businesses/companies should not affect the OEMs customers and vendors. No proper allocation of resources among respective businesses One of the family shareholder not interested in continuing the business There was a lot of cross amounts due among the family members Strategic Objectives Unlocking value across businesses

2. Change in management and ownership control of various businesses/companies should not affect the OEMs customers and vendors Various resources of the company to be allocated to the said divisions, based on the risk and return profile of each business Provide exit to one or some of the family shareholders who is not interested in continuing business Achieve the optimal objectives of the shareholdings in the different companies post restructuring Structuring Option & Recommendation The following option was considered to meet the strategic objectives of the management: Split company C1 into four divisions i.e., RTD, MTD, ED and remaining businesses into separate entities- the “Retail Trading Division” of C1 was demerged into C3, “Mumbai Trading division” into C4 and “Electronic Division” into C5. It was also decided that C2 would be merged with C1 through the same scheme of restructuring. Critical factors considered for Restructuring While recommending the share exchange ratio for merger of C2 with C1 brand value of the flagship company was considered There was a lot of cross amounts due among the family members which need to be taken care Stamp duty implications on transfer of assets Issues Addressed Provided exit to the family member who wished not to continue the business through cash settlement Appointed date for the merger was kept earlier, on the first date of the accounting year, then the appointed date of demerger on 30th September of the accounting year. This helped the management optimally set the cash flow for the intervening period of 6 months to accumulate into C1 and thus enhance the value for the shareholders. Also, the company’s management could take strategic commercial decisions during the buffer period. For more details, Visit at - http://huconsultancy.com/stressed-assets-structuring/