Creating shareholder value
through demergers has become
the flavor of the season of late. Demergers have been thrust back
onto the radar recently, as a plethora of
Indian firms are showing increasing interest in such deals. Promoters of
many Indian companies have been hiving off or have announced plans to hive off
a part of their business to unlock value, attract investors and avail tax
benefits, before the proposed changes in taxation rules come into effect. As per the
available data, the companies which have announced demerger plans in the
year 2010 include Transport Corporation of India, Triveni Engineering and
Industries, Dalmia Cement Bharat, Texmaco, Bilpower,
Harrisons Malayalam, ETC Networks, and Rain Commodities.
The sudden surge in such instances is primarily due to the
fear that the proposed changes to Section 56 of the Income Tax Act will,
once implemented, make the consideration received in kind by a subsidiary
from its parent taxable as income from other sources. The changes are yet
to come into effect, and interestingly, it is still debatable whether
demergers will be covered in the proposed changes to IT Act. Nonetheless,
Indian firms want to play safe by going for hiving off of their businesses ahead
of the implementation of the amendments. Interestingly, the trend
of demerging can also be witnessed in the global arena in the likes of
Liberty International, Cable and Wireless, Carphone Warehouse, Accor,
Jubilant, etc.
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