M & A CritiqueSalzer approved the merger of Salzer Magnet Wires Limited into Salzer Electronics in the year 2016.
Salzer Electronics Limited (SEL), which is the Transferee Company, is listed both on BSE and NSE having business in electrical installation products such as CAM operated rotary switches, switchgear products, and allied products all over the country and abroad.
Salzer Magnet Wires Limited (SMWL), which is the Transferor Company is ISO certified and closely held company with the same class of business that of Salzer Electronics such as production of cam switches, Load Break Switches, Wiring ducts, Toroidal transformers, Modular Switches etc.
Rationale for the merger
As both the companies are engaged in the similar and synergistical line of business i.e. manufacturing electrical installation products to provide solutions for electrical applications, it has been decided to merge these two companies.
The merger of SMWL with SEL will add another variant of products viz. enamel coated wires in its product’s list which will help to serve customers both in domestic and international markets.
This merger will provide stronger operational structure and also provide size economy in its infrastructure utility in cost efficient manner and will lead to more and more customer satisfaction.
Transaction
Appointed date is 1st April 2016. SMWL merged with SEL.
SEL will issue 1 equity share of Rs 10/each of SEL to the shareholders of SMWL for every 16 shares of Rs10 held by them in SMWL. In respect of fractions, cash will be paid in lieu thereof on proportionate basis.
Outstanding convertible securities in Transferee company. As on 1st April 2016, following convertible securities were outstanding in the books of SEL. Under ESOP, 729550 stock options out of 1028000 and 580,000 share warrants out of 10,00,000 warrants issued to the promoters and their bodies corporate are outstanding for which a similar number of shares will be issued by SEL.
The shares being so allotted will carry 2 years lock in period.
| Particulars | Pre-Merger | Post-Merger | ||
| No of Shares | % | No of Shares | % | |
| Promoter & Promoter Group | 3698109 | 26.62 | 3967956 | 26.94 |
| Public | 10191578 | 73.38 | 10759144 | 73.06 |
| Total | 13889687 | 100 | 14727100 | 100 |
After issuance of ESOP and share warrants, total share capital will be of Rs16 crore with the increase in both promoter’s shareholding and public shareholding of the company.
Financials
Table 1: Financials for Salzer Electronics Ltd. (All Figures in INR Crores)
| Particulars | 30-09-2016 | FY 2015-16 | FY 2014-15 | FY 2013-14 |
| Equity Paid-up Capital | 13.89 | 13.64 | 10.28 | 10.28 |
| Reserves & Surplus | 190.36 | 177.62 | 96.79 | 86.42 |
| Carry Forward losses | 0 | 0 | 0 | 0 |
| Net Worth | 204.24 | 191.26 | 107.07 | 96.70 |
| Secured Loan | 105.34 | 94.38 | 96.60 | 74.33 |
| Unsecured Loan | 15 | 15.25 | 0.25 | 8.40 |
| Fixed Assets | 115.94 | 110.36 | 83.37 | 68.38 |
| Income from operations | 181.18 | 361.13 | 283.30 | 244.53 |
| Total Income | 183.28 | 363.93 | 284.30 | 245.45 |
| Total Expenditure | 170.65 | 339.70 | 267.33 | 233.77 |
| Profit Before Tax | 12.63 | 24.24 | 16.97 | 11.69 |
| Profit After Tax | 9.55 | 17.05 | 11.98 | 8.44 |
| EPS | 8.32 | 13.54 | 11.65 | 8.21 |
| Book Value | 147.05 | 140.19 | 104.12 | 94.04 |
Loan amount is on increasing mode since FY 13-14. There is change in equity due to issue of ESOP and Share Warrants in the year 2015.
Table 2: Financials for Salzer Magnet Wires Ltd. (All figures in INR Crores)
| Particulars | 30-09-2016 | FY 2015-16 | FY 2014-15 | FY 2013-14 |
| Equity Paid-up Capital | 13.40 | 13.40 | 13.28 | 12.80 |
| Reserves & Surplus | 3.30 | 2.97 | 2.07 | 2.08 |
| Carry Forward losses | 0 | 0 | 0 | 0 |
| Net Worth | 16.70 | 16.37 | 15.35 | 14.88 |
| Secured Loan | 15.63 | 11.86 | 11.96 | 12.79 |
| Unsecured Loan | 0 | 3.87 | 4.02 | 3.35 |
| Fixed Assets | 9 | 9.44 | 10.14 | 10.79 |
| Income from operations | 26.08 | 47.88 | 48.31 | 44.24 |
| Total Income | 26.28 | 48.47 | 48.74 | 44.42 |
| Total Expenditure | 25.86 | 44.55 | 44.79 | 40.40 |
| Profit Before Tax | 0.42 | 1.11 | 1.10 | 0.90 |
| Profit After Tax | 0.33 | 0.87 | 0.80 | 1.33 |
| EPS | 0.24 | 0.65 | 0.60 | 1.04 |
| Book Value | 12.46 | 12.22 | 11.56 | 11.63 |
Conclusion
SMWL, though have paid up capital almost equal to that of SEL, by its operations are less than 5%. Merger is EPS dilutive though there is marginal increase in book value. So unless there are synergy benefits, this merger benefits mainly shareholders of SMWL by providing liquidity and the increasing possibility of dividend and appreciation of present business of SEL.
