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DEMERGER

MAX GROUP CASE


&
ADITYA BIRLA GROUP CASE

Ananya Mukherjee E 05
Meghna Shokeen E 24
De-merger: Breaking it down
• is a corporate restructuring
• in which a business is broken into components
• either to operate on their own, to be sold or to be liquidated.
• It allows a large company, such as a conglomerate
• to split off its various brands or business units
• to invite or prevent an acquisition,
• raise capital by selling off components that are no longer part of the business's
core product line
• or to create separate legal entities to handle different operations.

EXAMPLE: In 2001 British Telecom conducted a de-merger of its mobile phone operations, BT Wireless,
in an attempt to boost the performance of its stock. British Telecom took this action because it was
struggling under high debt levels from the wireless venture
Aditya
Birla
Group
• It is an Indian multinational conglomerate, headquartered in Mumbai, India.
• It operates in 35 countries with more than 120,000 employees worldwide
• The group was founded by Seth Shiv Narayan Birla in 1857
• The group had a revenue of approximately US$44.3 billion in year 2018

The group has interests in sectors such


1. as viscose staple fibre 8. fertilizers
2. metals 9. insulators
3. cement (largest in India) 10. financial services
4. viscose filament yarn 11. telecom
5. branded apparel 12. BPO
6. carbon black 13. IT services
7. chemicals
Aditya Birla Nuvo-Grasim Merger
The Rationale The Swap Ratio

• will help consolidate fast-growing • a shareholder will get 3 shares of


businesses Grasim for every 10 shares of AB
• unlock value by demerging Nuvo
• listing the financial services arm • 7 shares of AB Financial Services for
• to simplify the group structure by every 1 share of Grasim
removing cross-holding
Aditya Birla Nuvo-Grasim Merger

The Financials The Demerged Entity

• The merged entity had a revenue of • Aditya Birla Financial Services will be
Rs 59,760 crore demerged
• an operating profit of Rs 11,900 crore • and listed as a separate entity after
• a profit after tax of Rs 2,300 crore in the merger between AB Nuvo with
the year ended March 2017 Grasim.
• Its assets under management more
than doubled to Rs 1.84 lakh crore
Aditya Birla Nuvo-Grasim Merger - The promoters will own 39 percent in the
combined entity and public shareholders will hold the rest.
HOLDINGS: The merger is aimed at simplifying the cross-holding structure. The combined
entity will hold 28 percent in Idea Cellular, 11.4 percent in AB Fashions and 4.3 percent in
Hindalco
MAX THREE WAY DEMERGER
Max Group demerged into three listed companies:

Max Max
Financial Max India Ventures &
Services Industries

• Reason for Demerger: It enabled them to work with sharper focus and the
investors can involve themself according to particular objectives
FINANCIALS & DEMERGED ENTITY
• Treasury corpus of Rs 572 crore had been split as follows:
- Max Financial Services received Rs 150 crore
- Max India Rs 412 crore, and
- Max Ventures Rs 10 crore

• Max Financial Services - With $1.76 billion in revenues, contains the life insurance
business

• Max India - With $185 million in revenues, it is the second entity, with interests in hospitals,
and health insurance. It comprise of 14 hospitals and 2, 300 beds

• Max Ventures & Industries - With $107 million in revenues Max Ventures & Industries,
has added real estate, education (K-12 schools) and investments to Max's legacy manufacturing
SWAP RATIO
Shareholders of the erstwhile Max India – Retained one equity
share of Rs 2 in Max Financial Services and additionally received
one equity share of Rs 2 of the new company Max India for every
one equity share held in Max Financial Services. Similarly, in Max
Ventures & Industries, one equity share of Rs 10 was given for
every five equity shares of Rs 2 held in Max Financial Services
Max Life-HDFC Life
Merger Deal
• Max Life insurance business was looking forward to merge with HDFC Life to form
the largest private insurer in the country

• The plan involved holding company Max Financial Services first merging with
Max Life. That was to be followed by a demerger of the life insurance business,
which would subsequently be amalgamated with HDFC Life

• Insurance Regulatory and Development Authority of India (IRDA) referred the deal
to be in violation of section 35 of the Insurance Act - does not allow merger of an
insurance firm with a non-insurance firm

• The potential merger would have created India’s largest private sector life insurer,
surpassing ICICI Prudential Life Insurance Co. Ltd
Role of Human
Resources
in Demerger
HR plays a key role by helping people on
• Coping up with change and culture;
• Formulate the various policies, procedures and systems in place;
• Design organizational hierarchy structure;
• Provide assurance on Job security;
• Registration and Compliance of local labor laws.

Best practices to be followed by HR during and after demerger


• Identify leaders from the parent company who would lead the demerged company for
effective implementation and communication of the same to employees
• Identify key talent and skills which are required for demerged company
• Redesign or remap the hierarchy structure
• Manage the change of culture
• Organize employee engagement activities
• Explain the new set (if any) of policies and procedures
• Educate managers and conduct employee counseling
Thank You !!