Demerger of a Company

1. Demerger of a Company A demerger of a company is a court‑sanctioned separation of a defined business undertaking into a distinct entity so each platform can pursue focused strategy, optimized capital structures, and clearer governance. In India, a demerger of a company is typically executed via a Scheme of Arrangement under Sections 230–232 of the Companies Act, making the demerger of a company a reliable route to unlock value, reduce conglomerate discount, and improve investor communication. What is a Demerger of a Company? A demerger of a company transfers a ring‑fenced “undertaking” (assets, liabilities, contracts, IP, and employees) to a resulting company. The demerger of a company can take forms like: ● Spin‑off through a scheme where shareholders receive proportional shares in the resulting entity. ● Split‑up where the parent divides into multiple companies. ● Carve‑out via slump‑like transfer embedded in a scheme, maintaining going‑concern continuity. Core design principles in a demerger of a company: ● Clear perimeter: which assets and liabilities move. ● Fair share entitlement: valuation‑backed exchange ratios. ● Approval pathway: board, shareholders, creditors, regulators, and NCLT.

2. Why pursue a Demerger of a Company? A demerger of a company is pursued to achieve: ● Value discovery: remove conglomerate discount so each unit’s metrics are visible. ● Strategic focus: leadership accountability improves execution speed. ● Capital fit: tailor leverage and investors to business models. ● Risk ring‑fencing: isolate regulated/high‑risk activities. ● M&A optionality: a demerger of a company creates clean platforms for listings, partnerships, or divestitures. ● Talent and culture: align incentives with business realities. Process: How a Demerger of a Company Works in India 1. Strategy and Board Approval Define the value thesis for the demerger of a company, confirm undertaking perimeter, and secure the board’s in‑principle go‑ahead. 2. Valuation and Share Exchange Engage independent valuers; set the exchange ratio that anchors the demerger of a company to fairness and minority protection. 3. Draft Scheme and Diligence Draft the Scheme of Arrangement; map contracts, licenses, HR, IP, and tax in the demerger of a company; complete legal/financial/operational diligence. 4. NCLT Applications and Meetings Seek tribunal directions to convene shareholder and creditor meetings; secure required majorities for the demerger of a company. 5. Regulatory and Lender Consents Coordinate with stock exchanges/SEBI (if listed), lenders, and sectoral bodies; a compliant demerger of a company avoids execution bottlenecks. 6. NCLT Sanction and Effectiveness Upon sanction and RoC filing, the demerger of a company becomes effective on the appointed/effective date; implement transfers and allot shares. 7. Separation Execution Operate Day‑1 playbooks, TSAs/SSAs, IT cutovers, and governance frameworks so the demerger of a company transitions smoothly into two independent operations. Tax, Accounting, and Compliance in a Demerger of a Company ● Tax neutrality: If statutory conditions are met, a demerger of a company can be tax neutral for both transferor and shareholders.

3. ● Stamp duty: Budget state‑wise duty on instruments linked to the demerger of a company. ● Accounting: Ind AS treatment (pooling/purchase) impacts EPS and reserves post demerger of a company. ● Listing: For listed parents, record dates, listing approvals, and disclosures align the demerger of a company with market rules. ● Employees and contracts: Ensure continuity and consents so the demerger of a company preserves operations. Timelines for a Demerger of a Company ● Diagnostic and design: 4–8 weeks ● Valuation and diligence: 6–10 weeks ● NCLT and stakeholder approvals: 4–7 months ● Separation and Day‑1 cutover: parallel run through the demerger of a company lifecycle Overall, a demerger of a company for listed entities often completes in 6–12 months depending on complexity. Case‑Style Illustrations of a Demerger of a Company ● Separating a capital‑intensive hotels/infra arm allows a demerger of a company to tailor leverage and investor profiles. ● Spinning off financial services from consumer/tech clarifies regulatory regimes; the demerger of a company improves valuation narratives. ● Carving out a high‑growth niche subsidiary via a demerger of a company accelerates partnerships or a future listing. Pitfalls to Avoid in a Demerger of a Company ● Vague perimeter: Ambiguity slows a demerger of a company—lock a single source of truth. ● IT/data separation: Start early; a demerger of a company often hinges on systems cutover. ● Funding gaps: Secure working capital for both entities ahead of the demerger of a company. ● Weak equity story: Markets need KPIs and capital allocation clarity post demerger of a company. ● Consent management: Run a dedicated consents workstream for the demerger of a company. Readiness Scorecard for a Demerger of a Company

4. Rate 1–5 each; 25+ suggests readiness: ● Strategic rationale for a demerger of a company ● Clean separation perimeter ● Standalone viability and leadership ● Stakeholder alignment ● Regulatory map and covenants ● Budget and bandwidth for a demerger of a company ● Market receptivity FAQs on the Demerger of a Company ● Is every demerger of a company tax neutral? Only if specific conditions are met; structure and documentation are critical. ● How long does a demerger of a company take? Private: a few months; listed: typically 6–12 months. ● Do employees lose continuity in a demerger of a company? Properly structured schemes preserve continuity of service and benefits. ● Can the resulting entity list after a demerger of a company? Yes, subject to exchange and SEBI processes. How StratRich Helps Execute a Demerger of a Company ● Strategy and value architecture for a demerger of a company ● Valuation, exchange ratio modeling, and scheme design ● Regulatory orchestration: NCLT, SEBI/stock exchange, lender/creditor NOCs ● Separation Management Office for a demerger of a company: IT/HR/Finance cutover, TSAs/SSAs, Day‑1 playbooks ● Investor relations and listing readiness post demerger of a company ● Governance setup: boards, committees, policies, and dashboards Outcome: A demerger of a company that creates focused, well‑capitalized entities with transparent KPIs and durable value creation.