Value of Shares

This query is : Resolved

Rajendra Mahadik (Querist)
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10 July 2010 Company A Ltd. has 5 divisions out that one division say “M” was demerged and merged with B Ltd. The demerger is as per High Court Order.

The valuer of shares determined the worth of “M” division of “A” Ltd. at 40 percent of total worth of “A” Ltd. Accordingly “B” Ltd. allotted shares to the share holders of “A” Ltd. as under.

Sr.No. Name of Share holders No. of Shares in “A” Ltd. 40 percent Ratio for Allotment Share Alloted by “B” Ltd.
1 P 5000 2000 20 : 5 500
2 Q 8000 3200 20 : 5 800
3 R 4000 1600 20 : 5 400
4 S 2000 800 20 : 5 200
5 T 1000 400 20 : 5 100
Total 20000 8000 2000

The share holders did not pay any amount to “B” Ltd. against allotment of shares.

Now I want your opinion what will be the value of shares of “B” Ltd. in the hands of share holders.

1) Is it NIL value as nothing is paid by the share holders to “B” Ltd. ?
2) Is it Rs. 100/- i.e. face value of share and to reduce the value of shares of “A” Ltd. to that extent ?
3) To reduce the value of shares of “A” Ltd. by 40 percent and to show said amount as value of shares of “B” Ltd.

CA. Anoop Gadia

CA. Anoop Gadia (Expert)
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15 July 2010 On de-merger of any company the share value of company valued on net-worth basis

E.G. A ltd. had 3 division having net-worth as
Division 1 - 40%
division 2 - 40%
division 3 - 20%

If company de-mergered in 3 company
like div 1 with existing company and other to B ltd. and C ltd.

Than value of share of Mr. R which pur. 100Shares @ 500 is

For Company A = 200/-
For Company B = 200/-
For Company C = 100/-

e.g. reliance ind. de-merger in 2005-06
1. reliance ind.
2. reliance communication
3. Rnrl
4. Rel. energy venture
5. Rel. Capital venture

The Reliance shareholder will continue to hold the same number of shares he holds today. In addition, he would receive additional shares of the new demerged entities, as per the demerger ratio.

All RIL shareholders will be issued shares of the demerged companies in a 1:1 ratio. So if a shareholder holds 100 Reliance Industries shares he would get:

100 shares of Reliance Communications [ Get Quote ] Ventures Ltd, 100 shares of Reliance Energy Ventures Ltd (REVL), 100 shares of Reliance Capital Ventures Ltd (RECL) and 100 shares of Global Fuel Management Services Ltd.

With REVL being amalgamation with Reliance Energy and RECL with Reliance Capital -- following a board decision -- RIL shareholders will thus receive shares of REL and Reliance Capital based on an earlier approved independent swap ratio.

The ratio approved is 7.5 shares of Reliance Energy for 100 shares of REVL held and 5 shares of Reliance Capital for 100 shares of RECL held.

so ans. of your que. is the cost of shares of existing co. less by 40% and this 40% is cost of new company.