RTL Restructuring involved merger, demerger, slump sale and capital reduction
1. Internal Consolidation
Amalgamation of Group /Subsidiaries Companies
A Religare Experience
Manish Sharma, CFO – Religare Technologies Ltd.
April 06, 2011
2. Index
1
Basic concepts & Religare PhilosophyA 2-5
Particulars
S.
No.
Pg
No.
Case Study: Pre-consolidation scenarioB 6-8
Case Study: Process of consolidationC 9-11
D Post consolidation structure and value creation 12-15
3. Restructuring and Value Creation – basic concept:
2
Restructuring:
At the enterprise level, restructuring could mean a change in the investment structures,
financing structures, operating structures or governance structure of a company or any
combination of these parameters.
Internal consolidation is part of a larger exercise of restructuring.
Value Creation:
Value creation in simple words refers to improvements in the return on investment (of share
holders) by increasing the cash inflows and reducing risks.
Value is created only when a business unit or a company can earn a return on assets that
exceeds its cost of capital; when return on assets (ROA) falls short of the cost of capital, value
is destroyed.
4. Need for Restructuring
3
• Companies worldwide are refocusing, consolidating and merging to become
globally competitive
• Integrating acquisitions – deriving synergy
• Divesting non core / non profitable business
• Meeting shareholders expectation – “perception gap”
• Ultimate test of management is value creation
5. Types of Restructuring
4
Organization
Restructuring
Portfolio Restructuring
Operational
Restructuring
Financial Restructuring
“Un-clattering” by
restructuring might
improve performance
and create value for
the firm. Another big
reason for
organisational
restructuring is the
‘perception gap’ in the
market.
Companies restructure
their business to
reduce product
diversificationin order
to sharpen focus by
disposing off a unit
that is peripheral to
the core business.
Includes rationalisation
of internal structures
and cost optimisation
etc. Basically improving
operational efficiencies
in order to derive more
from same or less.
Includes appropriate
changes in the capital
structure of a firm,
including leveraged
recapitalisations and
debt for equity swaps
etc.
6. Religare Philosophy
5
Shareholders value as the governing objective of all management decisions
Review business mix, capital structure or ownership on regular basis to identify
opportunity to enhance value
Maximizing shareholders value maximizes value for all other stakeholders
7. RTL Restructuring involved merger, demerger, slump sale and capital
reduction – all in one scheme
Case Study – Religare Technova Limited (RTL)
8. Evolution of Technology Business in Religare Group
7
2006 2007 2008 2009 2010
Acquisition of
AsianCERC
(Leading provider
of online trading
solutions in India)
Formation of
RTBIL
(BPO/KPO
operations)
Acquisition of
Oliver Rays and
Prime Syscom
(IT Services Biz)
Demerger and
Merger Scheme
44% stake in
ChaseCooper,
(International
Operational Risk
Mgmt &
Consulting)
76% Acquisition of
Capital market
Solutions
(Leading provider in
Asia of post trade
processing solutions)
20% Investmentin
Marco Polo Capital
Markets
(Global cross
border trading
network)
Acquisition of
Healthcare IT division
of SRIT & investment
in C2L (Healthcare
software product &
Services Biz)
9. Pre – Consolidation
8
Pre-Consolidation Structure
ReligareTechnovaLtd. (Holding
Co.)
RTGSL
(Fin. Product
Co.)
RTITSL
(IT Serv)
ROHCL
(SPV)
RTGSPL
(AUS)
Promoters& PromotersGroupCo.
Olive rays
(ProdCo.)
RTBIL
(BPO)
ISD
(Serv. Div.)
RTECH
Listed Co.
Unlisted
Createdfor
Merger
Drivers for Restructuring
• Multiple acquisitions, Complex Structure – time
to un-complicate/ sharpen focus
• BFSI Software products biz and Healthcare IT
Services – distinct biz with separate needs
• Manpower skill required in two businesses are
different – HR strategy
• Valuation of each business is different -
perception gap
• Aligning with Group – in domain and strategy
11. Key consideration in deciding the Scheme
10
• Valuation Analysis - Unlocking value of business
• Change in investment structure - RTECH to be independent listed entity
• Direct listing is costly & complicated - listing of Rtech thru Court Approval process
• Attract investors for further growth – provision for liquidity
• Consolidate legal entity structure – prepare the resultant entities for future growth
12. Sequence of the Scheme
11
Slump Sale of ISD from RTGSL to RTECH
• Transfer of Information Service Division (‘’ISD’’) of RTGSL (a Listed company) to Religare Technologies Ltd.
(‘’RTECH’’) a company formed to integrate the Service spectrum of all the subsidiary companies on slump sale
basis
Demerger of RTBIL, RTITSL from RTL and vesting into RTECH
• Demerger of the holding company’s investment into RTITSL and RTBIL and vesting of it into RTECH
• Issue of equity shares of RTECH(Unlisted) to the shareholders of RTL (Listed)
• Reduction and Reorganization of Share Capital of RTL
Merger of RTBIL and RTITSL with RTECH
• Merger of RTITSL and RTBIL with RTECH
RTGSL merged to RTL and Listing of RTECH
• Merger of residual RTGSL with RTL
• Issue of equity shares of RTL to the shareholders of RTGSL
• Creation of Treasury shares issued to the Trust created for the benefit of RTL
• Listing of RTECH
Step 1
Step 2
Step 3
Step 4
14. Value Creation through Internal Consolidations
13
• Creation of two independent and separately listed companies carrying two distinct
business activities resulting in very clear focus on respective strategies for further growth
• Listing without public offer
• Provision to enhance liquidity for future investment without QIP / Right Issue etc
• Improvement in Net-worth and Market capitalisation of the resultant entity
15. 14
• Deciding the sequence
• Deciding the effective date
• Valuation Approach
• Window for fund infusion – Treasury shares
Some Interesting Issues examined…
16. To Sum Up…..
15
Restructuring and Internal Consolidation offers tremendous
opportunities for value creation by un-clattering the organisation structure
which helps in unlocking the true potential and creating synergy
It is a strategy for growth & expansion
Value creation is a continuous process