A PROJECT ON

“MERGERS&ACQUISITIONS”
IN
RANE ENGINE VALVE.LTD”

(Report submitted to Jawaharlal Nehru Technological University, Hyderabad in

partial fulfillment of the requirement for the award of the Degree of Masters in
Business Administration)

BY
S.MURALIKRISHNA
HT NO: 07N31E0027

Under the guidance of

Mr. T. SATISH KUMAR
Assoc. Professor

DEPARTMENT OF BUSINESS MANAGEMENT

MALLAREDDY COLLEGE OF
ENGINEERING & THECHNOLOGY,
MAISAMMAGUDA, DHULAPALLY SECUNDERABAD.

(JAWAHARLAL NEHRU TECHNOLOGICAL

UNIVERSITY)
2007-2009

1
 DECLARATION

I hereby declare that this project work entitled “MERGERS & ACQUISITIONS
OF RANE ENGINE VALVE LIMITED” is my work, carried out under the guidance of
my faculty guide and my company guide Mr.A.SRINIVAS RAO. This report of neither
full nor in part has ever been submitted for award of any other degree of either this
university or any other university.

S.MURALI KRISHNA
(07N31E0027)

2
 ACKNOWLEDGEMENTS

At the outset, I would like to thank THE RANE ENGINE VALVES for giving me the
approval to do the project in their organization. I am grateful to Mr. PRASAD, Finance
Manager of THE RANE ENGINE VALVES for the moral support, encouragement and
generous assistance.

I thank my guide, Mr. A.SRINIVAS RAO Finance Executive for his encouragement and
guidance, spending his valuable time.

I thank my Principle Dr.V.S.K.REDDY to support for exploring my talent at RANE

ENGINE VALVES

I thank my faculty guide Mr. T. SATISH KUMAR, Guiding and coordinating the Project
work. This Project would not have been possible without his help.

I also wish to recognize and thank Prof. K.R.K.MURTHY and Associate K. HARI
KRISHNA for inspiring me to make the best of the opportunity provided. I am thankful
to many individuals in the Department of Business Management for their professional
assistance.

I am very grateful to Mr. NAVEEN KUMAR, for his assistance in

preparing Statistic Analytical Work in my Report.

3
 CONTENTS

S.NO PARTICULARS PAGE NO

1. Introduction 06-12
 Objectives
 Methodology
 Limitation

2. Industry profile 14-18

3. Company profile 20-37

4. Review of Literature 39-54

5. Data analysis and interpretation 56-73

6. Findings, Suggestions, Conclusion 75-77

Bibliography 78

4
 CHAPTER-1

INTRODUCTION

5
 INTRODUCTION

Profitable growth constitutes one of the prime objectives of most of the

business firms. It can be achieved ‘internally’ either through the process of
introducing\developing new products or by expanding/enlarging the capacity of existing
products. Alternatively, the growth process can be facilitated ‘externally’ by acquisitions
of existing business firms. This acquisition may be in the form of mergers, acquisitions,
amalgamations, takeovers, absorption, consolidation, and so on. Although the legal
procedure involved in these are different, in view of the perspective of economic
considerations (motives and effect) these terms are used interchangeably here.

There are strengths and weaknesses of both the processes of promoting

growth. For instance, internal expansion apart from enabling the firm to retain control
with itself also provides flexibility in terms of choosing equipment, mode of technology,
location, and the like which are compatible with its existing operations.
Acquisition/merger obviates, in most of the situations, financing problems as
substantial/full payments are normally made in the form of shares of the purchasing
company.

A growing firm may, therefore, be in constant search for identifying

potential firms which may be merged. The finance manager’s job is to evaluate such
merger decisions. These decisions, in a way, are analogous to capital budgeting decisions
in that the cost of present investment (purchase consideration paid for acquisition of an
enterprise either through issuance of shares and/or cash) is to be compared with expected
future benefits accruing to the merging firm.

However, merger evaluations are relatively more difficult vis-à-vis capital

budgeting decisions, the two chief reasons being: (i) all benefits from merger are not
easily quantifiable and so also all costs, for instance, benefits of less competition and
economies of scale (technical, managerial, financial) are not easily measurable attributes;

6
and (ii) buying a company is more complicated than buying a new machine in that the
firm is to address itself to many tax, legal and accounting issues.

TYPES, ECONOMICS AND LIMITATIONS OF MERGERS

Types

Notwithstanding terminological differences, mergers can be usefully distinguished into

the following three types: (i) horizontal, (ii) vertical and (iii) conglomerate.

ACQUISITIONS\TAKEOVERS

Take over implies acquisition of controling intrest in a company by another company. It

does not lead to dissolution of the company whos shares are being\have been acquired. It
simply means a change of controlling intrest in a company through the acquisition of its
shares by another group the takeovers can assume three forms: (i) negotiated\friendly,
(ii) open market\hostile and (iii) bail-out. The first type of take over is organized by the
incumbent management with a due to part with the control of management to another
group through negotiation. The terms and conditions of the takeover are mutually settled
by the groups. The hostile takeovers are also referred to as raid on the company. In order
to takeover the management of, or acquire controlling interest in, the target company, a
person\group of persons acquire shares from the open market/financial
institutions/mutual funds/willing share holders at a price higher then the prevailing
market

FINANCIAL FRAMEWORK

This section discusses the financial framework of a merger decision. It covers three inter
related aspects: (i) determining the firm’s value, (ii) financing techniques in merger, and
(iii) analysis of merger as a capital budgeting decision.

Determining the Firm’s Value

One of the first problems in analyzing a potential merger involves determining the value
of the acquired firm. The value of a firm depends not only upon its earnings but also upon

7
the operating and financial characteristics of the acquiring firm. It is, therefore, not
possible to place a single value for the acquired firm. To determine an acceptable price
for a firm, a number of factors, quantitative as well as qualitative, are relevant. The
quantitative factors relate to (i) the value of the assets and (ii) the earnings of the firm.
Based on the assets’ values and earnings, these factors include book value, appraisal
value, market value and earnings per share.

Book Value The book value of a firm is based on the balance sheet value of the
owner’s equity. It is determined by dividing net worth by the number of equity shares
outstanding. The book value, as the basis of determining a firm’s value, suffers from a
serious limitation as it is based on the historical costs of the assets of the firm. Historical
costs do not bear a relationship either to the value of the firm or to its ability to generate
earnings. Nevertheless, it is relevant to the determination of a firm’s value for several
reasons. (i) it can be used as a starting point to be compared and complemented by other
analyses, (ii) in industries where the ability to generate earnings requires large
investments in fixed assets, the book value could be a critical factor where especially
plant and equipment are relatively new, (iii) a study of the firm’s working capital is
particularly appropriate and necessary in mergers involving a business consisting
primarily of liquid assets such as financial institutions.

Appraisal Value Appraisal value is another measure of determining a firm’s value.

Such a value is acquired from an independent appraisal agency. This value is normally
based on the replacement cost of assets. The appraisal value has several merits. In the
first place, it is an important factor in special situations such as in financial companies,
natural resource enterprises or organizations that have been operating at a loss.

Market Value The market value as reflected in the stock market quotations comprises
yet another approach for estimating the value of a business. The justification of market
value as an approximation of true worth of a firm is derived from the fact that market
quotations by and large indicate the consensus of investors as to the firm’s earning
potentials and the corresponding risk.

8
Earning Per Share According to this approach, the value of a prospective
acquisition is considered to be a function of the impact of the merger on the earnings per
share (EPS). In other words, the analysis could focus on whether the acquisition will have
a positive impact on the EPS after merger or it will have the effect of diluting it. The
future EPS will effect the firm’s share prices which is a function of price-earnings (P\E)
ratio and EPS.

9
 OBJECTIVES OF THE STUDY

 To study the system of Demerger, Mergers & Acquisitions in Rane Engine Valve
Ltd.

 To determine the benefit of Merger to the companies.

 To examine the feasibility of Merger to the company.

 To appraise the reasons behind the Demerger & Merger of the company.

 To analyze the financial performance of the company after merger.

 To give some suggestions to the management based on the information studied.

10
 METHODOLOGY

 The study of management of Demergers, Mergers & Acquisitions is based on

primary as well as secondary data.

 Primary source of data: A questionnaire was designed to collect responses

for the primary source of data from the employees of the organization. The
questionnaires contain both open ended questions and close ended questions.

 Secondary source of data: Secondary data was collected from the textbooks
mentioned in the bibliography, records of the organization.

 Sampling: For the purpose of the data collection a questionnaire was

administered from sample size of 50 employees

 Sampling technique: The sample was chosen on the basis of random

sampling technique.

 Analysis of data: For the purpose of analysis, feedback was collected from the
employees in the organization by the way of questionnaire. Data collected is
represented in the form of percentages and graphs and analysis has been done on
the basis of these percentages and graphs.

11
 LIMITATIONS

 Due to time constraint a comprehensive meticulous study was not possible. As a

result, there might be changes of errors creeping in.

 Owing to the busy schedule of the executives and the staff in the company,
exhaustive primary data could not be collected, which might affect the result of
the study.

 Recommendations of the study are only personal opinions. Hence judgments may
not be considered as ultimate and standard solutions.

12
 CHAPTER-2
INDUSTRY PROFILE

13
 GLOBAL SCENARIO

The history of the automobile begins with the technological breakthroughs that
occurred in Europe during the early 1800's and continues a century later with the
pioneering efforts of American manufactures to begin mass-producing cars. The world
economic downturn leading up to World War II led to consolidation in the fragmented
automobile manufacturing market, while in the postwar period, renewed economic
growth, television advertising, and an expanding road system accelerated sales for
automobile producers in many industrialized countries. Design, service, and speed
became trademarks of the successful companies, as evidence by the every growing range
of car models and the increasing popularity of NASCAR racing in the United States.

Automobile industry, the business of producing and selling self-powered vehicles,

including passenger cars, trucks, farm equipment, and other commercial vehicles. By
allowing consumers to commute long distances for work, shopping, and entertainment,
the auto industry has encouraged the development of an extensive road system, made
possible the growth of suburbs and shopping centers around major cities, and played a
key role in the growth of ancillary industries, such as the oil and travel businesses. The
auto industry has become one of the largest purchasers of many key industrial products,
such as steel. The large number of people the industry employs has made it a key
determinant of economic growth.

Current Scenario:
• The automobile industry crossed a landmark with total vehicle production of 10
million units.

• Car sales was 8,82,094 units against 8,20,179 units in 2004-05.

• The two-wheeler market grew by 13.6 per cent with 70,56,317 units against
62,09,765 units in 2004-05.

• Commercial vehicles segment grew at 10.1 per cent with 3,50,683 units against
3,18,430 units in 2004-05.

14
 INDIAN SCENARIO

The first motor car on the streets of India was seen in 1898. Mumbai had its first
taxicabs in the early 1900. Then for the next fifty years, cars were imported to satisfy
domestic demand. Between 1910 and 20's the automobile industry made a humble
beginning by setting up assembly plants in Mumbai, Calcutta and Chennai. The
import/assembly of vehicles grew consistently after the 1920's, crossing the 30,000 mark
in 1930. In 1946, Premier Automobile Ltd (PAL) earned the distinction of manufacturing
the first car in the country by assembling 'Dodge DeSoto' and 'Plymouth' cars at its Kurla
plant. Hindustan Motors (HM), which started as a manufacturer of auto components
graduated to manufacture cars in 1949.

In the 1990s, economic liberalization allowed foreign automakers such as

Hyundai, Ford, Toyota and GM set up base in India. The local component manufacturers
did not have the requisite size, technology or quality to meet the needs of these
international carmakers.

The Indian automotive industry has grown at a staggering pace over the last few years.
The US$ 6.8 billion industry has registered a CAGR of 17% between “1998-2003” and is
projected by ACMA (Auto Components Manufacturers Association of India) to grow at a
15% CAGR till fiscal 2012.

On the other hand, the high import tariffs and price sensitiveness of the Indian car
buyer made it unviable for these companies to import components from their global
suppliers. Therefore, the carmakers had to persuade their overseas components suppliers
to set up local manufacturing base in India. For example, Delphi followed after General
Motors opened its plant in the state of Gujarat in 1995 and Viste on followed by Ford in
1998.

As these companies developed and stabilized their Indian operations, they

realized the cost advantage of manufacturing components in India – typically lower by

15
about 30%. They began to explore the possibility of exporting back these low cost, high
quality components to their global factories and thus reduce their overall costs.

Car manufacturing in India first began in late 1940s. Earlier a couple of cars made by
foreign technology were manufactured in India. But now, cars made my Indian car
manufacturers dominate the business.

The future of car manufacturing in India is bright. Sensing this, foreign car manufacturers
like Ford, Toyota, Hyundai, Suzuki, Honda and Skoda are spreading their base in the
country. Domestic car manufacturers have also contributed to the growth of the
automobileindustryinIndia.

Indian automobile industry has grown leaps and bounds since 1898, a time when a car
had touched the Indian streets for the first time. At present it holds a promising tenth
position in the entire world with being # 2 in two wheelers and # 4 in commercial
vehicles. Withstanding a growth rate of 18% per annum and an annual production of
more than 2 million units, it may not be an exaggeration to say that this industry in the
comingyearswillsoontouch.

ReasonsofGrowth
Economic liberalization, increase in per capita income, various tax relief policies, easy
accessibility of finance, launch of new models and exciting discount offers made by
dealers all together have resulted in to a stupendous growthofIndiaautomobileindustry.

MarketShare
Automobile industry of India can be broadly classified under passenger vehicles,
commercial vehicles, three wheelers and two wheelers, with two wheelers having a
maximum market share of more than 75%. Automobile companies of India, Korea,
Europe and Japan have a significant hold on the Indian market share. Tata Motors
produces maximum numbers of mid and large size commercial vehicles, holding more
that 60% of the market share. Motorcycles tops the charts of two wheelers with Hero
Honda being the key player. Bajaj by far is the number one manufacturer of three
wheelersinIndia.

16
Passenger vehicle section is majorly ruled by the car manufacturers capturing over 82%
of the total market share. Global recession has impacted, the Indian automobile industry
also and can be seen clearly in the sales figures of the last financial year. Even then this
industry has high hopes in 2009-2010, as banks have reduced loan interest rates and the
major chuck of automobile customers belong to the middle income group who are
becoming economically stronger with every passing day.

The two wheelers manufacturers in India are, at present, doing good business. Especially
in the past few years, the two wheelers manufacturers have witnessed intense growth in
this sector.
As per the survey it has been seen that the total number of the two wheelers and three
wheelers produced in India in the period 2006 - 07 were around 9 million..

Bajaj Auto: In collaboration with Kawasaki Heavy Industries of Japan, this company
is the largest exporter of two and three wheelers in India. It was established in the year
1926 by Jamnalal Bajaj. The popular brands of this company are Pulsar and Discover
DTSi. In 2005 the Discover DTS-i was chosen as Bike of the Year for its superb design
byOverdriveAwards.
Hero Honda Motors: It is the World's No.1 two-wheeler manufacturing company.
The company, in collaboration with Hero Cycles of India and Honda Motor of Japan, is
known for some popular brands like Achiever, CBZ, CD Dawn, Karizma, Passion,
Pleasure and Splendor. Founded by Munjal Brothers, this group was established in the
year 1984 (The Hero Group was established in 1956). In 2006, Hero Honda Achiever
won NDTV Profit CarIndia & BikeIndia Awards for the Motorcycle of the Year

Majestic Auto Ltd: The Hero Majestic range of mopeds was launched in the year
1978. By 1983, this group was India's leading manufacturer of mopeds. Hero Panther,
Hero Panther 4S, Hero Gizmo, Hero Stallion 4S and Hero Ankur are the famous brands
of this company. It is one of the largest producers of mopeds in India.

17
Scooters India Ltd: This ISO 9001:2000 and ISO 14001 Company was incorporated
in 1972. This integrated automobile plant not only manufactures automobiles, but also
designs,developsandmarketsthem.

Suzuki Motorcycles: This is a subsidiary of Suzuki Motor Corporation in Japan. The

Manufacturing plant was installed in Gurgaon (Haryana) with
annualcapacityof1,75,000units.

TVS Motor Company: Founded by T V Sundaram Iyengar, this company was

established in August 1980 (TVS Group in 1911). It is the third largest two-wheeler
manufacturer in India and ranks among the top ten among all the two wheelers
manufacturers in the world.

18
 CHAPTER-3

COMPANY PROFILE

19
 COMPANY PROFILE

Rane Group is a leading manufacturer of safety critical automotive components in India

with a consolidated group turnover of Indian Rs.8.7 billion (USD 192 million) in 2003 –
2004.
The group has access to technology from global leaders like TRW Inc. USA,
NSK Japan, Nisshinbo Industries, and Japan. Rane companies are certified to QS 9000,
TS 16949 and ISO 14001 Standards. One of the group companies’ viz., Rane Brake
Linings Limited has won the Deming prize in 2003.

The group is a preferred and dominant supplier to Original Equipment

Manufacturers in India across industry segments - Passenger Cars, Multi Utility Vehicles,
Light Commercial Vehicles, Medium and Heavy Commercial Vehicles, Farm Tractors &
Two-wheelers. Rane products are exported to over 19 countries across the globe.

Mission:
Every Rane Company is focused on providing superior products and service to
the transportation, industrial, and farm sectors. The Company mission is to maintain
market leadership through quality, innovation, cost efficiency and modern manufacturing
technology. As a responsible corporate entity, they believe augmentation of exports and
respect for the environment is vital. Within this framework they will optimise the use of
resources and fulfill the expectations of our stakeholders.

Value:
Rane will ensure the highest standards of business ethics and integrity in all our
actions. They believe this to be vital to the success of the Rane enterprise. They also
encourage every employee to share this value.

20
Rane Group India:

 1929 - Started out as a trader of auto mobiles and parts

 1959 – The manufacture of IC engine valves commenced

 1960 – Manufacturing of steering linkages commenced

 1964 – Manufacturing of Brake Linings started

 1974 – Operations in associate company, Kar Mobiles limited, specialising

in medium and large diesel valves was started.
 1975 – Commenced manufacture of manual steering gears

 1987 – Commenced manufacturing of integral power steering systems

 1995 – Three new companies were incorporated for the manufacturing of:

 Clutch assemblies
 Energy absorbing steering columns
 Seat belt systems

About REVL:
REVL had been established in 1959 in collaboration with TRW Inc., USA. It
consists of four manufacturing plants situated two at Chennai and two at Hyderabad. It is
a leading manufacturer of valve train components in India enjoying excellent reputation
for product quality and reliability as a supplier.

It is the leading and preferred supplier to all Original Equipment Manufacturers

(OEMs) in India. It is the most sought after in the Aftermarket. Its application’s span is
from portable generator to large engines which include 2 wheeler, Passenger car, MUVs,
LCVs, M&HCVs, Farm Tractor and Stationery Engine segments.

21
 The basic products of REVL are:
• Engine Valves
• Valve Guides
• Tappets
• Crank shafts for Compressors
• Clutch Booster

About REVL Exports:

REVL is one of the earliest exporters of auto components from India. The
exports of REVL have been growing at a healthy rate that constitutes over 20% of sales.
It is a registered Export House. The products are exported to Australia, Far East,
Germany, Iran, Italy, Middle East, UK, and the USA.

Associate Companies:
A testimony to Rane’s ability to impart their absorbed technology is the
strategic alliance with Kar Mobiles Limited (KML). Rane has provided technology and
management expertise. KML today manufactures automotive valves as also large diesel
valves for locomotive engines and deface applications.
Through Kold Form Tech (India) Pvt. Ltd., another strategic association in India,
the group has successfully harnessed cold forging technology. For better access to the
widespread Indian aftermarket, JMA Rane Marketing Ltd. has been created. This has
significantly widened the reach of the group.

22
Customers
Domestic Customers:

Rane is either number one or two in every market segment they serve. They
supply to all the OEMs and engine manufactures in the country in addition to being a
significant supplier to the aftermarket. The OEM customers include:

 Ashok Leyland
 Escorts
 Eicher
 Ford
 Fiat
 Hero Honda
 Honda
 Hyundai
 Indian Railways
 Manhindra & Mahindra
 Maruti Udyog Limited
 TELCO
 Toyota
 TVS – Suzuki
 TAFE
 Tata Cummins
 International Customers

23
 Rane products reach over a hundred customers across the global in 19 countries
including: Australia, Dubai, Germany, Italy, Japan, Singapore, South Korea, UK and
USA.

Prestigious Customers include:

o TRW, Europe, USA & South Korea

o PACCAR, USA (from May 2000) – Peterbilt Trucks
o Spartan Motor Industries, USA
o Agco Ltd (Massey Ferguson), UK
o Nissan Diesel, Japan
o Federal Mogul, UK
o Nascon Auto Parts, Australia
o Deutz AG, Germany
o New Holland, UK
o Lister – Petter, UK
o
Technology – the competitive edge
Rane’s philosophy has always been market leadership through technology.
Strategic alliances with world leaders, over the years have resulted in safety critical Rane
products matching international standards, reaching Indian markets well ahead of their
timing.
The continuous emphasis on absorption / adoption of technology has resulted in
several Indian firsts for the group in terms of product features. To quote a few:

 Contour hardened ball studs – several fold fatigue life increase.

 Sintered Internals of Steering Pumps – cost effective
manufacturing

24
  Weld tipped Engine Valves – enhanced wear / temperature
performance.
 Rotatory type control valve for Power Steering – compact and
direct acting.
 Ground gear teeth on Rack Piston – superior performance of
steering gears

With their sights set on the moving target of customer delight, Rane
companies are constantly reviewing their manufacturing systems, moving towards
cellular manufacturing, JIT deliveries and eliminations of non – value added activities in
all their operations.
The strong alliances are:

 TRW Inc. USA – Power Steering systems, all Joints, Seat Belt
Systems and Engine Valves.
 NSK Japan – Energy Absorbing Steering columns, Manual RCB
Steering gears
 Nisshinbo Ind., Japan – Brake Linings, Disc Pads and Clutch
Facings
 BBA, UK – Railway Brake Blocks
 Unisia JKC, Japan – Hydraulic Steering Pumps.

Plant – 2, REVL:

The main activity of the organisation is the design and manufacturing of

valves, which form a part of the Internal Combustion Engine of Automobiles. Plant – 2 is
located at Medchal, 25km north to Hyderabad. The plant – 2 is one of the four plants of
Rane Engine Valves was set up in 1983 and is now spread over 17,500sq. Meters with the
built up portion being 6000 sq. meters.

The plant on the whole consists of three shops – Forge Shop, Machine Shop and
Process Shop where the different processes are carried out. The segments serviced by the

25
plant include Passenger Cars, Commercial Vehicles (LCV / MCV / HCV), Multi Utility
Vehicles and Tractors.

The plant is certified as per QS 9000 and ISO 14000 standards and working
towards the implementation of Total Quality Management (TQM). It has implemented
the concepts of Daily Routine Management (DRM) and also Quality Circles.

Rane Today:

The evolution of Rane Group reflects the growth trends of the automotive sector
in a developing nation. Spurred by vision, nurtured through technology, the seven Rane
Companies today manufacture twelve different product lines in seventeen locations. They
turn out components for prime movers as also safety critical products for steering and
braking.

The companies supply to every vehicle manufacturer in the Indian automobile

industry, the farm sector and the railways. The brand names Rane and EVL are legendary
in the industry. Achieving global standards of quality, technology and operating
efficiency will count decisively for survival and growth of the organizations in the 21st
century.

Appropriately, therefore it is Rane’s Endeavour to continually acquire and apply

global technologies and innovative strategies. These provide the leverage to meet the
challenges of the future. The Rane group has reached in 1998 a sales figure of Rs. 4285
million on capital employed of Rs. 4300 million. The group employs over 5000 people in
various locations.

In 2004-05 (Apr – Sept), the company registered a turnover of Rs 840.7 million

and a net profit of Rs 65.6 million.In its financial results for the quarter ended June 30,
2009, the company's profit after tax was down at Rs.0.12 crores as against Rs.1.21 crores
recorded in the same period last year.

26
 The company's new plant at Tiruchy, Tamil Nadu which has commenced
production is expected to break even within 12 months from now. The incremental
depreciation and interest of the new plant at Tiruchy also affected the profitability. It's
domestic OE and Exports business were down by 2% and 19% respectively. The export
market, mainly Europe was severely affected due to the global economic meltdown. The
extreme volatility in input costs and foreign exchange affected the profitability.

RANE GROUP COMPANIES

Customer Delight
through Total Quality

27
Engine valves * Valve Guides * Tappets * Camshafts *Manual Steering Systems
*Integral Power Steering Systems *Brake Linings * Clutch Facings * Disc Pads
*Railway Brake Blocks *Seat Belt Systems *Energy Absorbing Steering Columns.

Product Range

1. Rane (Madras) Limited Steering & Suspension Systems

2. Rane TRW Steering

Power Steering Systems
Systems Limited

3. Rane Engine Valves Limited Valves, Valve Guides, Camshafts, Tappets.

Brake linings, Disc Pads, Composite brake

4. Rane Brake Linings Limited
blocks, Clutch facings

5. TRW Rane Occupant

Seat Belt Systems
Restraints Limited

28
6. Rane Nastech Limited Energy Absorbing Steering Columns

Associate Companies

 Kar Mobiles Limited

• Automotive Valves,
• Large Diesel valves for locomotive engines & defence application

 J M A Rane Marketing Limited

• Distribution company for auto components

Access to World Class Technology

The Group has access to World Class Technology through strong alliances :-

TRW Inc. - Power Steering systems,

USA Ball Joints, Seat Belt Systems, &
Engine Valves

NSK - Energy Absorbing Steering

Japan columns, Manual RCB Steering gears

Nisshinbo Ind., - Brake Linings, Disc Pads and Clutch

Japan Facings

BBA, U K - Railway Brake Blocks

Unisia JKC,

29
Japan - Hydraulic Steering Pumps

SALES PROFILE

22%

53%

25%

O.E REP EXP

30
SALES BY APPLICATIONS

TW
Com Veh
17% 27%

ST Eng
9%
PC
38%
FTR
9%

31
 MARKET SHARE

REVL Is the largest player in India in the valve train segment

OTHERS
20% KML
20%

32 REVL
60%
DOMESTIC OEM CUSTOMERS

Partial list in alphabetical order….

1. Ashok Leyland
2. Cummins India
3. Eicher Motors
4. Escorts
5. Fiat (India) Ltd
6. Hero Honda Motors
7. Hindustan Motors
8. Hindustan Power plus
9. Honda Siel Power products ltd
10. Hyundai Motors
11. Kinetic Engineering
12. L & T John Deere
13. LML
14. Mahindra & Mahindra
15. Maruti Suzuki
16. New Holland Tractors India
17. Royal Enfield Motors
18. Simpson & Co.
19. Swaraj Mazda
20. Tata Cummins
21. Telco
22. T V S Motor Company Ltd
23. Yamaha Motors India Ltd.

EXPORTS

33
REVL is one of the earliest exporters of auto components from India. Exports have
been growing at a healthy rate during the past three years and represent 22% of
sales.

Importing countries include Australia,U.K, Germany, Italy, Iran, USA, Middle East
and the Far East.

REVL’s Overseas OE customers include reputed passenger cars, tractor and other
engine manufacturers.

Product range - valves

34
Product range – Cast products

Camshafts

Tappets

Guides

35
 Quality System

• All plants are QS – 9000 certified by RWTUV, Germany.

• Working for introducing TQM practices.

• Warranty rates less than 1 ppm.

• Continuous improvement in quality standards through SPC and employee

involvement.

• Well-equipped standards rooms and testing facilities to build quality into the
products.

• Won the National Award for Quality instituted by the Automotive Components
Manufacturers’ Association ( ACMA) for the year 1992-93.

• Five times winner of the “Best Vendor Award” from Maruti – Suzuki ( largest car
manufacturer in India) – 92-93, 95-96, 96-97, 98-99 & 00-01

• “Ship to use”status granted by Cummins India Ltd.& Tata Cummins Ltd.

36
• Excellent record in product quality and delivery.

• Selected by Ford India for sourcing valves for export.

NEW PRODUCT DEVELOPMENT CAPABILITY

 Valves had been one of the early items to be indigenised by several OEMs. With
well-established design, testing and NPD capability, REVL continues to be the
preferred source to all OEMs in the country. The development projects cover
major OEMs like Maruti – Suzuki, Hyundai Motors, Hero – Honda to mention a
few.
Today, REVL is single source for valves for as many as 10 OEMs.

 ISO 9001 certification is a testimonial for REVL’s design capability. Exploiting

this strength, REVL has successfully implemented several Value Engineering
proposals for various customers.

 Large export portfolio necessitates production of a large number of new products

making the NPD activity a part of routine in the company. The product range
covers 1500 applications at present.

37
 CHAPTER-4

REVIRE OF LITERATURE

38
 INTRODUCTION
Profitable growth constitutes one of the prime objectives of most of the
business firms. It can be achieved ‘internally’ either through the process of
introducing\developing new products or by expanding/enlarging the capacity of existing
products. Alternatively, the growth process can be facilitated ‘externally’ by acquisitions
of existing business firms. This acquisition may be in the form of mergers, acquisitions,
amalgamations, takeovers, absorption, consolidation, and so on. Although the legal
procedure involved in these are different, in view of the perspective of economic
considerations (motives and effect) these terms are used interchangeably here.

There are strengths and weaknesses of both the processes of promoting

growth. For instance, internal expansion apart from enabling the firm to retain control
with itself also provides flexibility in terms of choosing equipment, mode of technology,
location, and the like which are compatible with its existing operations.
Acquisition/merger obviates, in most of the situations, financing problems as
substantial/full payments are normally made in the form of shares of the purchasing
company.

A growing firm may, therefore, be in constant search for identifying

potential firms which may be merged. The finance manager’s job is to evaluate such
merger decisions. These decisions, in a way, are analogous to capital budgeting decisions
in that the cost of present investment (purchase consideration paid for acquisition of an
enterprise either through issuance of shares and/or cash) is to be compared with expected
future benefits accruing to the merging firm.

39
 However, merger evaluations are relatively more difficult vis-à-vis capital
budgeting decisions, the two chief reasons being: (i) all benefits from merger are not
easily quantifiable and so also all costs, for instance, benefits of less competition and
economies of scale (technical, managerial, financial) are not easily measurable attributes;
and (ii) buying a company is more complicated than buying a new machine in that the
firm is to address itself to many tax, legal and accounting issues.

The merger/amalgamations of corporates constitutes a subject-matter of the

companies Act, the courts and law there are well-laid down procedures for valuation of
shares and rights of investors. Section three covers the framework of
mergers/amalgamations. The acquisition/takeover bids fall under the purview of the
Securities and Exchange Board of India (SEBI) and the stock exchange listing
agreements.

TYPES, ECONOMICS AND LIMITATIONS OF MERGERS

Types

Notwithstanding terminological differences, mergers can be usefully distinguished into

the following three types: (i) horizontal, (ii) vertical and (iii) conglomerate.

Horizontal Merger Horizontal merger takes place when two or more corporate firms
dealing in similar lines of activity combine together. Elimination or reduction in
competition, putting an end to price-cutting, economies of scale in production, research
and development, marketing and management are the often cited motives underlying such
mergers.

40
Vertical Merger Vertical merger occurs when a firm acquires firms ‘upstream’ from
it and\or firms ‘downstream’ from it. In the case of an ‘upstream’ merger, it extends
to the suppliers of raw materials and to those firms that sell eventually to the
customer in the event of a ‘downstream’ merger. Thus, the combination involves two
or more stages of production or distribution that are usually separate. Lower buying
cost of materials, lower distribution costs, assured supplies and market, increasing or
creating barriers to entry for potential competitors or placing them at a cost
advantage are the chief gains accruing from such mergers.

Conglomerate Merger In marked contrast, conglomerate merger is a combination

in which a firm established in one industry combines with a firm from an unrelated
industry. In other words, firms engaged in two different\unrelated economic/business
activities combine together. Diversification of risk constitutes the rationale for such
mergers.
Economics
The major economic advantages of merger are: (i) economies of scale, (ii) synergy,
(iii) fast growth, (iv) tax benefits and (v) diversification.

Economies of Scale The operating cost advantage in terms of economies of scale is

considered to be the primary motive for mergers, in particular, for horizontal and
vertical mergers. They result in lower average cost of production and sales due to
higher level of operations. In operational terms, real economies may arise from (i)
the production activity of the firm, (ii) the research and development \technological
activities; (iii) the synergy effects; (iv) marketing and distribution; (v) transport,
storage, inventories; and (vi) managerial economies.

Synergy It results from complementary activities. For instance, one firm may have a
substantial amount of financial resources, while the other has profitable investment
opportunities. Likewise, one firm may have a strong research and development (R & D)

41
team whereas the other may have a very efficiently organized production department.
Similarly, one firm may have well-established brands of its products but lacks marketing
organization and another firm may have a very strong marketing organization. The
merged concern in all these cases will be more efficient than the individual firms. And,
hence, the combined value of merged firms is likely to be greater than the sum of the
individual entities (units).

Fast Growth Merger often enables the amalgamating firm to grow at a rate faster
than is possible under internal expansion route via its own capital budgeting proposals
because the acquiring company enters a new market quickly, avoids the delay associated
with building a new plant and establishing the new line of product. ‘Internal growth is

time-consuming, requiring research and development, organization of product, market

penetration and in general a smoothly working organization.’ Merger obviates all these
obstacles and thus steps up the pace of corporate growth.

Tax Benefits Under certain conditions, tax benefits may turn out to be the underlying
motive for a merger. These conditions relate to the tax laws allowing set-off and carry-
forward of losses. It may be beneficial to merge a firm, (saddled with large tax carry-
forward losses) with a firm having sufficient current earnings. The argument is that this
tax-loss carry forward will reduces the taxable income of the new merged firm, with its
obvious impact on the reduction of tax liability.

Diversification Diversification is yet another major advantage especially in

conglomerate merger. The argument is that a merger between two unrelated firms would
tend to reduce business risk, which, in turn, reduces the discount rate\required rate of
return (Ke) of the firm’s earnings (as investors are risk averse) and, thus, increases the
market value. In other words, such mergers help stabilize or smoothen overall corporate
income which would otherwise fluctuate due to seasonal or economic cycles.

42
Limitations

However, merger suffers from certain weaknesses. The chief ones are discussed as under:
First, a merger may not turn out to be a financially profitable proposition in view
of non-realization of potential economies in terms of cost reduction. Second, the
management of the two companies may not go along because of friction. Third,
dissenting minority shareholders may cause problems. Finally, it may attract government
anti-trust action in terms of the Monopolies and Restrictive Trade Practices Act.

FINANCIAL FRAMEWORK

This section discusses the financial framework of a merger decision. It covers three inter
related aspects: (i) determining the firm’s value, (ii) financing techniques in merger, and
(iii) analysis of merger as a capital budgeting decision.

Determining the Firm’s Value

One of the first problems in analyzing a potential merger involves determining the value
of the acquired firm. The value of a firm depends not only upon its earnings but also upon
the operating and financial characteristics of the acquiring firm. It is, therefore, not
possible to place a single value for the acquired firm. To determine an acceptable price
for a firm, a number of factors, quantitative as well as qualitative, are relevant. The
quantitative factors relate to (i) the value of the assets and (ii) the earnings of the firm.
Based on the assets’ values and earnings, these factors include book value, appraisal
value, market value and earnings per share.

Book Value The book value of a firm is based on the balance sheet value of the
owner’s equity. It is determined by dividing net worth by the number of equity shares
outstanding. The book value, as the basis of determining a firm’s value, suffers from a
serious limitation as it is based on the historical costs of the assets of the firm. Historical

43
costs do not bear a relationship either to the value of the firm or to its ability to generate
earnings. Nevertheless, it is relevant to the determination of a firm’s value for several
reasons. (i) it can be used as a starting point to be compared and complemented by other
analyses, (ii) in industries where the ability to generate earnings requires large
investments in fixed assets, the book value could be a critical factor where especially
plant and equipment are relatively new, (iii) a study of the firm’s working capital is
particularly appropriate and necessary in mergers involving a business consisting
primarily of liquid assets such as financial institutions.

Appraisal Value Appraisal value is another measure of determining a firm’s value.

Such a value is acquired from an independent appraisal agency. This value is normally
based on the replacement cost of assets. The appraisal value has several merits. In the
first place, it is an important factor in special situations such as in financial companies,
natural resource enterprises or organizations that have been operating at a loss.

Market Value The market value as reflected in the stock market quotations comprises
yet another approach for estimating the value of a business. The justification of market
value as an approximation of true worth of a firm is derived from the fact that market
quotations by and large indicate the consensus of investors as to the firm’s earning
potentials and the corresponding risk.

Earning Per Share According to this approach, the value of a prospective

acquisition is considered to be a function of the impact of the merger on the earnings per
share (EPS). In other words, the analysis could focus on whether the acquisition will have
a positive impact on the EPS after merger or it will have the effect of diluting it. The
future EPS will effect the firm’s share prices which is a function of price-earnings (P\E)
ratio and EPS.

Merger as a Capital Budgeting Decision

44
The capital budgeting decision, the merger decision requires comparison between the
expected benefits [measured in terms of the present value of expected benefits\cash
inflows (CFAT) from the merger] with the cost of the acquisition of the target firm. The
acquisition costs include the payment made to the target firm’s shareholders and the
payment made to discharge the external liabilities of the acquired firm less cash proceeds
expected to be realized by the acquiring firm from the sale of certain assets of the target
firm. The decision criterion is ‘to go for the merger’ if the net present value (NPV) is
positive; the decision would be ‘against the merger’ in the event of the NPV being
negative.

Scheme of Merger\Amalgamation
Whenever two\more companies agree to merge with each other, they have to prepare a
scheme of amalgamation. The acquiring company should prepare the scheme in
consultation with its merchant bankers\financial consultants. The main contents of a
model scheme are as listed below.
• Description of the transferor and the transferee company and the business of the
transferor.
• Their authorized, issued and subscribed\paid-up capital.
• Basis of scheme: Main terms of the scheme in self-contained paragraphs on the
recommendation of valuation report, covering transfer of assets/liabilities, transfer
date, reduction or consolidation of capital, application to financial institutions as
lead institution for permission and so on.
• Change of name, object clause and accounting year.
• Protection of employment.
• Dividend position and prospects.
• Management: Board of directors, their number and participation of transferee
company’s directors on the board.
• Application under sections 391 and 394 of the companies Act, 1956, to obtain a
high court’s approval.
• Expenses of amalgamation.
• Conditions of the scheme to become effective and operative, effective date of
amalgamation.

45
The basis of merger\amalgamation in the scheme should be the reports of the valuers of
assets of both the merger partner companies. The scheme should be prepared on the basis
of the valuer’s report, reports of chartered accountants engaged for financial analysis and
fixation of exchange ratio, report of auditors and audited accounts of both the companies
prepared up to the appointed date. It should be ensured that the scheme is just and
equitable to the shareholders, employees of each of the amalgamating company and to the
public.

Approvals for the Scheme The scheme of merger\amalgamation is governed by

the provisions of section 391-394 of the companies Act. The legal process requires
approval to the schemes as detailed below.

Approval from Shareholders In terms of Section 391, shareholders of both the

amalgamating and the amalgamated companies should hold their respective meetings
under the directions of the respective high courts and consider the scheme of
amalgamation. A separate meeting of both preference and the equity shareholders should
be convened are required to pass a special resolution for the issue of shares to the
shareholders of the amalgamating company in terms of the scheme of amalgamation.

Approval from Creditors\Financial Institutions\Banks Approvals are

required from the creditors, banks and financial institutions to the scheme of
amalgamation in terms of their respective agreements\arrangements with each of the
amalgamating and the amalgamated companies as also under Section 391.

Approvals from Respective High Court Approvals of the respective high

court in terms of sections 391-394, confirming the scheme of amalgamation are required.
The courts issue orders for dissolving the amalgamating company without winding up on
receipt of the reports from the official liquidator and the regional director, Company Law
Board, that the affairs of the amalgamating company have not been conducted in a
manner prejudicial to the interests of its members or to public interests.

46
Approval from Reserve Bank of India In terms of section 19 of Foreign
Exchange Regulation (FERA) Act, * 1973, when the amalgamated company issues any
shares to the non-resident shareholders of the amalgamating company, it is required to
obtain the permission of the Reserve Bank of India. Further, provisions of section 29 of
FERA also restrict the acquisition of the whole or any part of any undertaking in India, in
which non-residents’ interest is more than the specified percentage.
Thus, this approval is required only when non-resident interests are involved in the
merger or amalgamation.

ACQUISITIONS\TAKEOVERS

Take over implies acquisition of controling intrest in a company by another company. It

does not lead to dissolution of the company whos shares are being\have been acquired. It
simply means a change of controlling intrest in a company through the acquisition of its
shares by another group the takeovers can assume three forms: (i) negotiated\friendly,
(ii) open market\hostile and (iii) bail-out. The first type of take over is organized by the
incumbent management with a due to part with the control of management to another
group through negotiation. The terms and conditions of the takeover are mutually settled
by the groups. The hostile takeovers are also referred to as raid on the company. In order
to takeover the management of, or acquire controlling interest in, the target company, a
person\group of persons acquire shares from the open market/financial
institutions/mutual funds/willing share holders at a price higher then the prevailing
market price. Such takeovers are hostile to the existing management. When a profit
earning company takes over a financially sick company to bail it out, it is known as bail-
out takeover. The takeover bids in respect of purchase price, track record of the acquirer
and his financial position are evaluated by a leading financial institution. The corporate
takeovers in the country are governed primarily by the listing agreement with stock
exchanges and the SBI code. The main elements of the regulatory framework for
takeovers and hostile takeover strategies and defensive strategies are briefly described in
this section.

47
LISTING AGREEMENT
The takeover of companies listed on the stock exchanges is regulated by clause 40-A and
40-B of the listing Agreement. The clause 40-A deals with substantial acquisition of
securities and clause 40-B details the requirements to be met when a takeover offer is
made to a company either voluntarily or otherwise.

Substantial Acquisition of Securities. The Company agrees that the following would also
be the conditions for continued listing.
1. When a person acquires or agrees to acquire any securities in the company and
when the total nominal value of such securities so acquired or agreed to be
acquired together with the total nominal value of the securities already held by the
such person, exceeds or would exceed in the aggregate 4 percent of the voting
capital of the company, the stock exchange should be notified with in 2 days of
such acquisition or such agreement for acquisition, by the authorized intermediary
and also by the acquirer.
2. When any person holds securities which in the aggregate carry less than 10
percent of the voting rights in the company, he can not acquire any securities
which, when aggregated with the securities already held by him, would carry 10
percent or more of the voting rights unless he notifies the stock exchange and
fulfills the conditions specified in clause 40-B, unless the SEBI has specifically
granted exemption.
3. The company should notify the stock exchange within 7days about any
information which has an effect on its assets and liabilities or financial position or
on the general course of its business leading to substantial movements in the price
of the securities and in particular information about transactions mentioned above.
4. The above conditions are not applicable to an acquisition by a person whom has
announced his firm intention to make an offer to the company and also notified
the stock exchange.

REQUIREMENTS FOR TAKEOVER OFFER

48
The Company also agrees that it is a condition for continuous listing that whenever a
takeover offer is made to, or by it, whether voluntarily or compulsorily, the following
requirements would be fulfilled.
1. A public announcement of a take over offer would be made both by the offeror
company and the offeree company when (a) any person in his own name or in the
name of any other person acquires, whether by a series of transactions over a
period of time or otherwise, securities which when aggregated with securities
already held or acquired by such person would carry 10 percent or more of the
total voting rights of the offeree company; or (b) secure the control of
management of a company, by acquiring or agreeing to acquire, irrespective of
the percentage of the voting capital, the securities of the directors or other
members, who by virtue of their holdings of securities together with the holdings
of their relatives, nominees, family interest and group control or manage of the
company.

2. If the offer is made by a person other than the ultimate offeror, the identify of
such other person would be disclosed at the outset in the public announcement as
also in the notification of stock exchange.
3. The offer should be placed, in the first instance, before the board of directors of
the offeree company containing the following particulars: (a) detailed terms of
offer, (b) identify of the offeror, (c) details of the offeror’s existing holding in the
offeree company, (d) all conditions to which the offer is subject, and (e)
confirmation by the offeror that resources available to the offeror are sufficient to
satisfy full acceptance of the offer.
4. All the above information would be made equally available to all the shareholders
both of the offeror company and the offeree company at the same time and in the
same manner, along with copies of all documents and announcements bearing an
offer which would simultaneously be lodged with SEBI.
5. The offer to the remaining shareholders of the transferee company would be
acquire from them an aggregate minimum of 20 percent of the voting capital of
the company,

49
 6. From each of the shareholders accepting such offer, the acquirer should acquire
his full holding upto 100 shares of the face value of Rs 10 each or upto 10 shares
if the face value is Rs 100.
7. When the directors of an offeree company sell shares to a purchaser as result of
which the purchaser is required to make an offer, the directors should ensure that
as a condition of the sale, the purchaser undertakes to fulfill his obligations.
8. The board of directors of the offeree company should not, without the approval of
the shareholders in general meeting (a) issue any authorized but unissued shares;
(b) issue any securities carrying rights of conversion, into or subscription for,
shares; or (c) sell, dispose off or acquire assets of a substantial amount.

9. The provisions of clause 40-A and clause 40-B of the listing agreement, do not
apply to acquisition of securities in the company of (a) Unit Trust of India, (b)
SEBI Capital Markets Ltd, (c) Canbank Financial Services Ltd, (d) LIC Mutual
Funds, (e) such other agencies or mutual funds as may be specified by SEBI from
10. time to time, (f) in pursuance to orders of amalgamations, mergers and
acquisitions passed by the court under sections 391 and 394 of the companies Act,
(g) in pursuance to orders passed by the BIFR under Sick Industrial Companies
(Special Provisions) Act, 1985.
11. The provisions contained in this clause are without prejudice to the approval
required to be obtained under the Companies Act, Monopolies and Restrictive
Trade Practices (MRTP) Act and Foreign Exchange (Regulation) Act, 1973.
Complying with the provisions of clause 40-B could be avoided in respect of an
intended takeover if SEBI has granted exemption vide proviso to clause 40-A(b)
of the standard listing agreement.

Securities and Exchange Board of India (SEBI) Substantial Acquisition of Shares

and Takeover Code, 1997. A takeover bid is generally understood to imply the
acquisition of shares carrying voting rights in a company in a direct or indirect
manner with a view to gaining control over the management of the company. Such
takeovers could take place through a process of friendly negotiation or in a hostile
manner in which the existing management resists the change in control. Both the

50
substantial acquisition of shares and change in the control of a listed company are
covered by takeover bids.

Disclosure of Shareholding and Control in Listed Companies:

Acquisition of Shares\Voting Rights Any acquirer of shares\voting rights
together with the existing holdings in excess of 5 percent in a company in pursuance of a
public issue or by one\more transaction or in any other manner is required to disclose to
the concerned company the aggregate of his holdings\voting rights within four working
days of the receipt of intimation of allotment\acquisition of shares. The concerned listed
company must disclose the aggregate number of shares held by each such person within
seven days of the receipt of information to the concerned stock exchange.

Power to Call for Information The stock exchange and the concerned companies
would have to furnish to the SEBI information regarding disclosure of shareholding and
control as and when required.

Power to Remove Difficulties In order to remove any difficulties in the

interpretation\application of the provisions of this code, SEBI has powers to issue
directions through guidance notes\circulars which would be binding on the acquirers,
target company, shareholders and merchant bankers.

Acquisition of Fifteen Percent or More Shares\Voting Rights An acquirer

who agrees to acquire\acquire shares\voting rights, which together with existing holdings
by him\person working in concert with him entitle him to exercise 15 percent, or more of
the voting rights in a company has to make a public announcements to the effect.

Acquisition of Control Irrespective of whether or not there has been any acquisition
of shares\voting rights, no person can acquire control over the target company without
making a public announcement. A change in control in pursuance to a resolution of the
shareholders is exempted from this requirement. Where there are two or more persons in
control of the target company, the cessor of any one of them from such control or change

51
in the nature and quantum of control between them would not constitute change in
control of management.

Appointment of a Merchant Banker Before making any public announcement

of offer, the acquirer has to appoint a category I merchant banker who should not be a
group company\associate of the acquirer or the target company.

Brochures and Advertisement Material The public announcement of the

offer\any other advertisement, circular, brochure, publicity material\letter of offer issued
in relation to the acquisition of the shares should not contain any misleading information.

Submission of letter of Offer to SEBI The acquirer should through its merchant
banker file with SEBI the draft of the letter of offer containing the specified disclosures
together with a fee of Rs.50,000 within 14 days from the date of public announcement.
The offer letter is required to be despatched to the shareholders not earlier than 21 days
from its submission to SEBI. If within 21days, SEBI indicates any changes, the merchant
banker-acquirer would have to carry them out before the despatch of the offer letter to the
shareholders.
Specified Date The public announcement should specify a date for the purpose of
determining the names of shareholders to whom the letter of offer would be sent. The
specified date cannot be later than the thirtieth (30th) day from the date of public
announcement.

Minimum Number of Shares to be Acquired The public offer should be made

to the shareholders of the target company to acquire an aggregate minimum of 20 percent
of the voting capital of the company. In case of the open offer consequent upon
consolidation of holdings with voting rights exceeding 75 percent, the public offer should
be for such percentage of the voting capital of the company as may be decided by the
acquirer.

52
General Obligations of the Acquirer The public announcement of offer to
acquire the shares of the target company should be made only when the acquirer is able to
implement the offer.
With in 14 days of the public announcement of the offer, the acquirer must send a
copy of the draft letter of offer to the target company at its registered office address, for
being placed before the board of directors and to all the stock exchanges where the shares
of the company are listed.
The acquirer must ensure that the letter of offer is sent to all the shareholders
(including non-resident Indians) of the target company, whose names appear on the
register of members of the company as on the specified date mentioned in the public
announcement, so as to reach them with in 45 days from the date of public
announcement. The letter of offer should also sent to the custodians of the GDRs\ADRs

holders, holders of warrants\convertibles issued pursuant to a domestic issue when the

period for the exercise of the option falls within the offer period.

The date of opening of the offer should be not later than the 60th day from the date
of the public announcement.
The offer to acquire shares from the shareholders should remain open for a period
of a maximum of 30 days.

General Obligations of the Target Company The target company should

furnish to the acquirer, within 7 days of the request of the acquirer or within 7 days from
the specified date, whichever is later, a list of shareholders or warrant holders or
convertible debenture holders. This list should contain names, addresses, shareholding
and folio number. The list should also contain the names, addresses and the like of those
persons whose applications for registration of transfer of shares are pending with the
company.
Once the public announcement has been made, the board of directors of the target
company should not appoint as additional director in any casual vacancy any person
representing or having interest in the acquirer, till date of certification by the merchant
banker.

53
General Obligations of the Merchant Banker Before the public announcement
of offer is made, the merchant banker should ensure that (i) the acquirer is able to
implement the offer; (ii) the provision relating to escrow account has been made; (iii)
firm arrangement for funds and money for payment through verifiable means to fulfill the
obligations under the offer is in place; and (iv) the public announcement of the offer is
made in terms of the code\regulations.

Payment of Consideration For the amount of consideration payable in cash, the

acquirer must, within a period of 21 days from the date of closure of the offer, open a
special account with a banker to an issue registered with SEBI. The acquirer must
deposit, in the account, such sum as would, together with 90 percent of the amount lying

in the escrow account, if any, make up the entire sum due and payable to the shareholders
as consideration for acceptances received and accepted and, for this purpose, transfer the
funds from the escrow account.

The unclaimed balance lying to the credit of the special account at the end of 3
years from the date of deposit should be transferred to the investor protection fund of the
regional stock exchange of the target company.

54
 CHAPTER-5

DATA ANALYSIS

55
 &
INTERPRETATION

Rane Engine Valves Limited (REVL)

Apportionment of cost of acquisition of shares

Background

 The hon’ble High Court of judicature at Madras, vide its order dated 20th
December 2007 has approved the Scheme of Arrangement under Section 394 of
the compnies Act, 1956 for De-merger of the manufacturing undertaking of
REVL on a going concern basis to Techons Limited (since renamed as ‘Rane
Engine Valve Limited’) and merger of the remaining business of REVL into Rane
Holdings Limited (‘RHL’).

 As per the approved “Scheme” every shareholder REVL will be alloted in shares
in RANE ENGINE VALVE LIMITED AND RANE HOLDINGS LIMITED in
the following proportion:

 For every 100 shares in REVL:

 100 shares in RANE ENGINE VALVE LIMITED and

56
  56 shares in RANE HOLDINGS LIMITED

 This presentation outlines the manner of apportionment of the cost of acquisition

of REVL’s shares for the purposes of the Income Tax Act, 1961(‘Act’)

 With regard to the Cost of Acquisition of New Shares in Techcons (since renamed
as ‘Rane Engine Valve Limited’). Section 49(2C) of the Act provides formula for
splitting the original Cost of Acquisition of shares of REVL between New Shares
allotted in Techcons (since renamed as ‘Rane Engine Valve Limited’) and REVL.

An extract of the provisions of Section 49(2C) is reproduced below for your

reference:

“…the cost of acquisition of shares in the resulting company shall be the amount
which bears to the cost of acquisition of the shares held by the assessee in the
demegered company the same proportion as the net book valve of the assets
transferred in a demerger bears to the net worth of the demerged company
immediately before such demerger…”

“…Explanation – for the purpose of this section, net worth shall mean the aggregate
of the paid up share capital and general reserves as appearing in the books of accounts
of the demerged company immediately before the demerger…”

 With regard to the Cost of Acquisition of Shares in REVL, Section 49(2D) of the
Act provides the formula for splitting the original Cost of Acquisition of Shares of
REVL between New Shares allotted in Techcons since renamed as ‘Rane Engine
Valve Limited’) and REVL.

57
 An extract of the provisions of Section 49(2D) is reproduced below for your
reference:

“…the cost of acquisition of the original shares held by the shareholder in the
demerged company shall be deemed to have been reduced by the amount so arrived at
under sub-section (2C)…”

 On amalgamation, the cost of acquisition of shares in RHL shall be deemed to be

the cost of acquisition of shares in the amalgamating company i.e. REVL.
Accordingly, cost attributed to shares of REVL upon de-merger shall be deemed
to be the cost of acquisition of shares in RHL.

Computation of Net-worth of REVL as on March 31, 2007

Particulars REVL
Paid up share capital 51,510
General reserve 685,412
Surplus in profit and loss account 48,211
Securities premium account** 155,532
Capital reserve** 2,772
Capital reserves arising on amalgamation** 2,923
Capital subsidy** 2,281
Export incentive reserve** 1,908
Less : Miscellaneous expenditure** (4,174)
Net worth as on March 31, 2007 946,375
Net book value of assets transferred by REVL to Techcons 801,451
Ratio of net book value of assets transferred to net-worth of 84.69%
REVL

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R aneG roup - P

59

53%
Proposed restructu
 Demerge the manufact
REVL and RBL into n
shares on 1:1 basis in t
shareholders.
Proposed restruc
 Merge the residual bu
into RHL and in consi
Rane
 to Investments Ltd
the shareholders of
subsidiary of RHL as
RHL and REVL/RBL)
residual businesses of
 RIL will be merged in
“Scheme”
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61
62
63
64
 Rs.M
Mar-07 Mar-07
Invest Manufact
INCOME ment uring
Division
1,841 Net Sales and Operating Income - 1,841
EXPENDITURE
1,595 Manufacturing & other expenses - 1,595
19 Finance Charges - 19
98 Depreciation - 98
1,712 Total Expenditure - 1,712
129 OPERATING PROFIT BEFORE TAX - 129
80 Other Income (Note) 20 60
209 Profit before tax 20 189
55 Provision for taxation - Current - 55
4 - Deferred - 4
4 -FBT - 4
147 PROFIT AFTER TAX 20 127
Note : Dividend Income

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 Rs. M
Apr-07
Investment Manufac
Mar-07 Elements
turing
Division

52 Share capital - 52
899 Reserves & Surplus 151 748
950 Shareholders funds 151 799
157 Term Loans - 157
269 Working Capital borrowings - 269
426 Loan funds - 426
55 Deferred Tax Liability 1 54
1,431 Capital employed 152 1,279

757 Net Fixed Assets 12 745

549 Net Current Assets 19 530
121 Investments 121 -
4 Def. Revenue Expenditure - 4
1,431 Capital employed 152 1,279
30% Debt to Capital Employed 0% 33%
45% Debt Equity Ratio 0% 53%

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 Prerequisities until getting the Court Order

Identify all the areas of statutory / legal requirements for starting new business

Coordinate and check with the respective government departments , explain the
Demerger scheme and get to know the procedures to be complied with

Get the forms, fill in and collect all the required annexures

Show the filled in forms, clarify all the doubts and ensure that forms once presented will
be cleared and approval given

On getting the Court Order / ROC certification, file with the government departments and
get the Fresh registration/consent immediately.

To apply for name change from Techcons Limited to Rane Engine Valves Limited

To fulfill all the requirements for commencing the operations

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 CHAPTER-6

Findings, Suggestions, Conclusion

& Bibliography

74
 FINDINGS

• The cost of acquisition figures have been computed on certain assumptions and hence
are indicative in nature.

• The implications discussed are based on advice received from our consultants and the
understanding and interpretation of the legislations as on the date of this presentation
in process flow of scheme.

• Based on the merger objective the REV Ltd acheived the sales volume of 1841
millions.

• In merging period(2007-2008) the net sales and operating income are raised up to
1841 millions from 1150 millions.

• The market price of share increased to Rs.50 from Rs.44

• The merger activity in march 2007 share capital of maufacturing division increased
to 51 millions and also shareholders fund was raised to 799 millions.

• The market share of engine valves raised to 33% as REV Ltd entered into various
geographical areas & business realted to engine valves.

• The income statement of 2007 indicates that the PAT was acheived 127 millions. It
shows the company financial position is satisfactory condition.

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 SUGGSETIONS

• New Registration and Transfer of existing accounts (or) intimation of the

Demerge and change of entity.

• All plant properties to be registered in the name of Techons Ltd. Corresponding

property tax/water & sewage tax etc. also be transfered to Techons ltd.

• All agreements in the name of REVL has to be changed to Techons ltd.

• Adequate C Forms to be kept ready and it is suggessted to issue C Forms for all
purchases upto Sep-07 immediately and for Oct-Dec in Jan-07.

• All stationaries like P.O / Invoice / Letter head etc incorporating the new Excise /
Vat registration numbers has to be printed.

• The existing bank accounts will be transfered to Techons Ltd.

• Approval for transfer of Export obligations of pending advance licences/EPCG

licences from REVL to Techons Ltd.

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 CONCLUSION

If there is a change, including a change having a retrospective effect, in

the statutory laws and regulations, the comments expressed in this presentation would
necessarily have to be re-evaluated in light of the changes. We do not have
responsibility of updating this presentation.

All plant properties to be registered in the name of Techons Ltd.

Corresponding property tax/water & sewage tax etc. also be transfered to Techons ltd.
To analyze the financial performance of the company after merger. All agreements in
the name of REVL has to be changed to Techons ltd.

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 BIBILOGRAPHY

BOOK AUTHORS

Essentials of financial management Prasanna chandra

Essentials of financial management S. N. Maheswari

Essentials of financial management Rastogi

Cost and management accounting R. P. Trivedi

WEBSITES:

WWW.RANEGROUP.COM

WWW.STUDYFINANCE.COM

WWW.MONEYCONTROL.COM

WWW.MBACLUBINDIA.COM

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