M&A Critique

Valiant’s move from private to public and merger

Valiant Organics Limited approved the scheme of amalgamation of AbhilashaTex-Chem Ltd into Valiant Organics Ltd.

Abhilasha Tex – Chem Limited (ATCL) and Valiant Organics Limited (VOL) both are engaged in the business of manufacturing, buying, selling and exporting of chemicals.

VOL is mainly engaged in the business of manufacturing and marketing different types of chlorophenol, which is a chemical having several applications mainly into agro-chemical industry with a single location manufacturing facility at Sarigam Industrial Estate.

ATCL is in the business of Speciality chemical named as Para Nitro Aniline for own sale as well as on job work basis having manufacturing facility at Tarapur.


  • This Scheme of amalgamation will lead to consolidation of business and assets of the company, synergy of operations and networks of both the companies.
  • The merger of ATCL with VOL will result in an increase in the public float of VOL which will form part of public shareholding and will positively impact the liquidity of the shares of VOL.

Promoters of both the Companies

Gogri family is part of promoters of both the companies.


This corporate restructuring looks like a straightforward consolidation of business and assets of the company.
ATCL (Public unlisted company) will get merged into VOL, a public limited company, listed on SME BSE, where the consideration will be issued in the following manner;

365 Equity Shares of VOL of Rs10 each will be issued for every 100 Equity Shares of ATCL having Face value of Rs100 each.

The existing share capital of ATCL is 609323 Equity Shares of Rs100 each. Thus in the course of amalgamation, 22,24,029 new shares of Rs10 of VOL will be issued to ATCL. Respectively, we can see the change in the pre and post shareholding pattern of the company in below-mentioned table 1.

Appointed date for this transaction is 1st July 2016.

Both the companies are not having any carry forward losses, so it is tax neutral decision to keep the cut-off date as appointed date or any date later to year ending date.

VOL has gone for IPO in the month of September 2016 and in the board meeting held on 9th November 2016, the company approved the amalgamation with the appointed date as 1st July 2016

Shareholding Pattern of VOL

Table 1: Shareholding Pattern

Particulars Pre – IPO Post – IPO Post – Merger
Name of Shareholders No of Shares % Holding No of Shares % Holding No of Shares % Holding
Promoters 2457210 67.50% 1892961 52% 2771683 47.26%
Public 964800 48% 3092666 52.74%
Other 1183110 32.50% 782559
Total 3640320 100.00% 3640320 100% 5864349 100%

Public Shareholding will increase post-merger though in percentage terms increase will be only around 5%. Post-merger, promoters of ATCL except Gogri family is considered as public.


Table 2: Financials of VOL (All figures in INR Crores)

Particulars 30-9-2016 2015-16 2014-15 2013-14
Equity 3.64 3.64 0.36 0.36
Reserves & Surplus 23.73 19.11 21.10 18.34
Carry Forward Losses 0 0 0 0
Net Worth 27.37 22.75 21.46 18.70
Total Income 25.73 53.48 60.24 43.91
Total Expenditure 18.56 37.72 49.30 35.71
Profit before tax 7.17 15.72 10.94 8.20
Profit After Tax 4.62 10.24 7.28 5.54
Margin % (PAT/Total Income) 17.9556 19.1473 12.0850 12.6167
Cash Profits After Tax 7.69 16.68 11.76 8.98
RONW % (PAT/NW) 16.8797 45.0109 33.9235 29.6257
EPS 12.68 28.14 199.88 152.31
Book Value 75.18 62.50 589.62 513.69

Upon the coming into effect of this scheme, the authorised share capital of Valiant shall stand increased to Rs10,50,00,000 divided into 105,00,000 equity shares of Rs10 each.

Share Capital History of VOL

  1. In the year March 1st, 2005, company was formed with the nominal shares capital of Rs. 100,000 (10,000 shares of Rs10 each)
  2. IN 2005, company further allotted 4,38,000 at Rs.250/- share issue price in consideration for acquisition of running business. (consideration disbursed by way other than cash)
  3. Thus the total amount invested in the business by the end of March 2005, is Rs 1.05 crore

Buy Back

VOL bought back shares for almost 5 times from 2005 to 2016.

  • Buying back shares of stock allows a company to reduce the extra cash that it has on its balance sheet without having to raise the company’s dividend.
  • If the rise in the company’s cash balance is temporary, then it may be more beneficial to pass that increased cash value on to shareholders through a share buyback programme rather than trying to force an increased dividend yield that cannot be sustained over the long term.

Table 3: Buyback of Shares for VOL over the years

Date No of Shares Issue Price Total Buyback price
15-12-2007 59136 280 1.66
22-01-2009 102630 291 2.99
23-02-2010 122008 330 4.03
25-03-2011 90430 372 3.36
26-04-2012 63796 440 2.81
Total amount paid for buy back 14.84

Bonus Issue

VOL has issued 32,76,288 bonus shares in the Financial year 2015– 16 in the month of August in the ratio 9:1 (Nine Shares for every one previously held share).

  • A bonus issue is taken as sign of the good financial health of the company.
  • The issue of Bonus Shares helps in bringing proper balance between paid-up capital and accumulated reserves and helps in improving the market image of the company.
  • Increasing the number of outstanding shares through a bonus issue increases the participation of smaller investors in the company’s shares and hence enhances the liquidity of the stock.
    Date No of Shares Bonus Ratio
    07-11-2007 89600 1:5
    21-11-2008 47846 1:10
    04-01-2010 169472 2:5
    11-01-2011 47114 1:10
    05-08-2015 3276288 9:1
    Total Bonus Shares Issued till date 3630320

Dividend Payment

VOL has also declared dividend on Equity Shares amounting to Rs 7.28 crore for the Financial Year 2015-16 and total dividend in last 5 years comes to almost Rs 15 crore.

Initial Public Offer (IPO)

Also, in September 2016, VOL has gone for IPO of 9,64,800 equity shares of Rs10 each for cash price of Rs220 per share aggregating to Rs 21.23 crore through an offer for sale.

Table 4: Financials for ATCL (All Figures in INR Crores)

Particulars 30-9-2016 2015-16 2014-15 2013-14
Equity 6.09 6.09 0.55 0.55
Reserves & Surplus 11.65 8.90 9.58 5.43
Carry Forward Losses 0 0 0 0
Net Worth 17.75 14.99 10.13 5.98
Total Income 17.64 36.93 39.87 33.60
Total Expenditure 13.36 27.63 33.68 33.46
Profit before tax 4.28 9.30 6.20 0.13
Profit After Tax 2.76 4.34 4.19 0.09
Margin% (PAT/Total Income) 15.6462 11.7519 10.5091 0.2678
Cash Profits After Tax 4.72 10.13 7.74 1.84
RONW % ((PAT/NW) 15.5493 28.9526 41.3622 1.5050
EPS 45.26 71.27 756.30 15.55
Book Value 291.27 246.01 1829.02 1080.02

Accounting Treatment

  1. The merger and IPO can be undertaken for the benefit of business as a whole, or its just one more step towards wealth maximisation of promoters
    From the appointed date, all inter-party transactions between the Transferor company and Transferee company shall be considered as intra-party transaction.
  2. Transferee company i.e. VOL shall follow Amalgamation in the Nature of Purchase method for the purpose of accounting as per AS 14.
  3. VOL shall record all the assets and liabilities transferred to and vested in VOL at their respective book values.
  4. Intercompany balances if any shall stand cancelled.
  5. VOL Shall credit Equity Share Capital account with aggregate face value of shares.
  6. The difference between the net value of assets over aggregate face value be adjusted to Capital reserve or Goodwill, in the books of VOL.


  • Valiant’s promoter shareholders got around Rs 50 crore by way of buyback, dividend and offer for sale in last 5 years just before listing. Post-IPO, promoter’s stake became 52% from 67%, still holding majority part in Valiant.
  • As of today, the Market Capitalisation of Valiant is Rs 155.08 crore, out of which around Rs 78 crore of value is held by promoters of Valiant.

Hence, if we take into account the stake of promoters and past events (such as constant buyback and dividend payments), it is little bit difficult to say whether this merger and Initial Public offer is really undertaken for the benefit of business as a whole, or its just one more step towards wealth maximisation of promoters.

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M & A Critique