A manufacturing company engaged in the garments production and export. To expand the business, Client (‘Investor’) identified a Joint venture partner (‘Investee’) and invested by subscribing to the equity share capital to the extent of 49%. Client decided to acquire the balance 51% stake which was partially held by the Sellers directly and partially through their overseas entity. The Investor company sought our advice on the following specific areas:
- Mechanics to acquire the balance 51% stake.
- Settlement of Domestic as well as Overseas debt.
- Tax Arbitrage opportunities.
Key Challenges:
- Consolidation Mechanics: Client required all the available options and a guidance on the best available option.
- Overall Acquisition Cost: Commercial viability of the acquisition considering the tax arbitrage opportunity.
- Loss setoff benefit: As per Indian Tax regulations, any change in beneficial shareholding beyond 51% between the last date of the year in which business loss was incurred and the year in which loss is set-off, such loss is not allowed to be setoff. Our strategy should enable the investor to be able to offset the loss.
- Time sensitive: Our option should enable the investor to close the acquisition in 30-45 working days.
We presented five efficient approaches for the acquisition and thereafter, assisted in closure of the deal within the prescribed timelines.
