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I-T dept opposes Jisco – JV
19th March 2004: The income-tax department has opposed the merger of Jindal Iron & Steel (Jisco) with Jindal Vijaynagar Steel (JVSL), saying it will cause a loss of Rs 50.6 crore to the department. Jisco proposes to demerge its investment wing into Jindal South West Holdings, while the steel business is proposed to be moved into JVSL with effect from April 1, 2003. After the merger, Jisco is expected to be dissolved without winding up. JVSL has an accumulated loss of over Rs 2,500 crores. Jisco director Mr. Seshagiri Rao said that the merger of the two companies is a business-driven merger is being effected for greater synergy between the two companies. The Jindal merger will integrate the company into a giant, with a presence in the entire steel chain from iron ore to galvanized coils. Mr. Rao further added that the Legal counsel had been sought before the merger decision was taken and the tax liability cannot be a ground for stopping a merger. Jisco has offered to pay a minimum alternate tax of Rs 17.6 crores under the provisions of Section 115 JB of the I-T Act. However, the income-tax department claims the tax liability of the company for the relevant period is over Rs 50.9 crores, on the basis of Jisco’s published results. According to Jisco, the post amalgamation tax liability under Section 115 J of the Income-Tax Act is Rs. 17.6 crores. The I-T department has brought to the Court’s notice the fact that Jisco’s profit before tax for April-December 2003 is Rs. 162 crores; hence the tax payable is around Rs. 50.9 crores. The merger scheme is pending before the High Courts of Bombay and Bangalore for approval. Under these circumstances, the tax authorities have taken a decision to intervene in the High Court proceedings. It is cleared that Jisco’s profit is being merged into JVSL’s loss to reduce tax liability.

10th March 2004:GSK-Burroughs merger with GlaxoSmithkline Pharmaceuticals
The merger of Burroughs Wellcome with GlaxoSmithkline Pharmaceuticals will be soon set into motion. Mr. D S Parekh, the chairman of Glaxo India stated that the company had appointed two agencies; Ernst & Young and Deloitte to do the valuation and that these agencies would present the swap ratio. The merger is expected to be complete by September this year and it will be effective from January 1, 2004. A merger between Glaxo and Wellcome was implemented across the world in the mid and late 90s. In India it got into a deadlock over wage disparities. Pay scales of workmen at Burrough’s Mulund factory had been higher than what GSK offered at its own factories. Though the business and operational integration was completed in the late 90s, the Mulund employees did not settle for lower wages and refused a one-time package that would make up for the difference thus effectively blocking a merger. Burroughs had offered VRS to the 500-plus employees at its now-closed Mulund plant last year. This paved the way for the legal merger. A decision has not yet been taken on the property at Mulund. GSK’s property at Worli, in central Mumbai, is close to being sold. Mr. Parekh said that the company had four preferred bidders. ICICI Ventures-Oberoi Developers is in the lead for the property. The deal could be in the region of Rs.100 crores. The company might consider merging its wholly owned subsidiary Biddle Sawyer with GSK. GSK had acquired Biddle Sawyer in January 1998 for a total consideration of about Rs.75 crores. In 2002 it closed down the operations of Biddle Sawyer due to high manufacturing costs.

L & T files demerger plan, likely to come into effect by middle of ’04

L & T files demerger plan, likely to come into effect by middle of ’04


15th November 2003: Larsen & Toubro (L&T), the leading engineering and cement company, has finalised the scheme of Arrangement for demerging its cement business and filed the same with the stock exchanges in keeping with statutory requirements recently introduced by SEBI. As per the demerger plan, L&T’s 16.5m cement division, which is the country’s largest, will be hived off into a separate company to be known as Cemco, where the Aditya Birla group company is ready to take a controlling 51% stake. The demerger is likely to be effective by the middle of next year. L&T struck a deal with the Birlas in June 2003 to release majority stake in the demerged Cement Company. The Aditya Birla group would shell out Rs. 2200 crores for the country’s largest cement capacity and in turn agreed to divest its current stake of over 15.5% on L&T, which would become a focused engineering company, to an L&T employees’ trust.


As per the three-step demerger deal, L&T would demerge the cement business into a separate company, Cemco, wherein the parent will hold 20% and the balance 80% shareholding would be held by existing L&T shareholders in proportionate basis. As a result, the Aditya Birla group will hold a 12.5% stake in Cemco. In the second stage, Grasim will buy 8.5% in Cemco from L & T at Rs. 171.3 per share and make an open offer for another 30 % in the cement firm at the same price. The open offer, if fully subscribed, will take the AV Birla group’s holding in Cemco to 51%. In the third step, L&T will form an employees trust, which would buy the Birlas’ 15.3% shareholding in the residual engineering company, L&T, at Rs. 120 per share.


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