PVR Cinemax Special Situation

Need to do an analysis of this one over the weekend but did a quick check of timeline for Jyothy-Henkel and TechM-Satyam ( similar situations)



1. Board meeting of Jyothy Lab for considering amalgamation                15th June 2012

2. Direction by Bombay High Court to convene meeting of

Shareholders                                                                                               19th October 2012

3. Court Convened Meeting(s) held                                                           22nd November 2012

4. Bombay H.C. approval for amalgamation                                           12th April 2013

5. Effective date of amalgamation ( info to BSE)                                    13th May 2013

6. Record date for determining eligibility for allotment

of shares                                                                                                    28th May 2013

Shares were actually allotted sometime in August due to the fact that NSDL/CDSL wanted clearance from SEBI since SEBI had put Henkel’s name in the list of companies that had not complied with the minimum 25% public shareholding norm. SEBI took more than 2 months to give time for hearing then pass order ( talk of height of ridiculousness of it but that’s the nature of the beast)

Total time taken for liquid trade in shares allotted post amalgamation 1 year 2 1/2 months.

In-between I had a running duel with the co sec of Jyothy as to why it was taking them so long but that’s another story.

Tech Mahindra

1. Board meeting of Tech M for considering amalgamation                21st March 2012

2. Direction by Bombay High Court to convene meeting of

Shareholders                                                                                         3rd May 2012

3. Court Convened Meeting(s) held                                                       7th June 2012

4. Bombay H.C. approval for amalgamation                                       28th September 2012

5. Andhra High Court Approval                                                             11th June 2013

6. Record date for determining eligibility for allotment

of shares                                                                                                    5th July 2013

7. Shares allotted                                                                                     8th July 2013

Total Time taken                      1 year 3 1/2 months.

Notice the speed displayed by the company in dates. This process took time due to Ramalinga Raju controlled entities filing objections in the Andhra High Court.


1. PVR Board approval                                                          15th June 2013

2. Direction of High Court                                                    Not informed in the filing with BSE

3. Court convened meetings of

Shareholders and Creditors                                                  7th December 2013

Notice the similarities between Jyothy and PVR. My take is that big law firms can help speed up the process in HC.

I reckon that barring unforseen circumstances this merger should get over and shares allotted latest by end of June 2014 which is about 7 months away.

Cinemax closed at 286 today and PVR at 577. With a swap ratio of 4:7 ( 4 shares of PVR for 7 shares of Cinemax ), the effective cost per share of PVR works out to Rs 500.5. This means a buyer of Cinemax at CMP should be able to realize a gain of about 15% ( not counting the transaction and demat costs ) in 7-8 months time. This assumes no further fall in PVR prices which is what the analysis will try to figure out. Watch this space.

Happy investing

Piramal Health & Piramal Lifesciences-Special Situation-Tax Angle

Query from Kiran on Twitter set me thinking that tax aspect of this transaction is something that I did not analyze originally. I kind of assumed that the gain that I make in the transaction ( hopefully) will be short term capital gain in nature and I will be able to adjust these with short term capital losses during the year.

So about 15 minutes of diving through the Taxmann’s Direct Taxes Primer yielded the following:

Assumption: buying 4 shares of PLSL and getting 1 shares of PHC besides the 4 shares in PLSL after the demerger excercise is over ( we are fairly close to the event in my recokning ).

As per section 49(2)C of I.T. Act cost of acquisition of shares in the resulting compay ( PHC) which bears to the cost of acquistion of shares held by assessee ( you) in the dmerged company ( PLSL) the same proportion as the net book value of the assets trasferred in a demerger bears to the networth of the demerged compay immediately before such demerger.

This in our case means pretty much 100% since I do not see any other business being carried on by PLSL ( there may some marginal other business like herbal business but I think that is pretty much immaterial).

If we take the accumuated losses in the books of PLSL as assets of the company then the ratio of assets transferred and networth is 100%. This means that your cost of acquisiton of PLSL will be treated as zero post the event and all the value will then reside in PHC shares ( of course I am hoping that market does assign some value to PLSL-may be few rupees which should act as the icing on the cake ). However the picture gets complicated if we do not take the accumulated losses into calculation. the percentage then turns negative. This is where I need help of an experienced Tax CA or advocate to clarify. Of course PHC will send out a letter alongwith the letter of allottment that should clarify this position.

Following points are to be noted:
1. For the purpose of determing whether the asset is long term or not the relevant date would be the date of acquisiton of PLSL. Hence if you hold the resultant shares of PHC for one year from the date that you bought PLSL shares, you will be entitled to benefit of long term capital gain tax rate ( zero ).

2. Indexation will start from the date of allottment of PHC shares ( not relevant for our purposes since PHC is a listed company and most likely when you sell, you will sell in the market and pay STT. However if you transfer PHC shares outside the market, this date of start of indexation will be relevant.

There is whole lot of other related stuff like depreciation, transfer definitions etc but not material for the limited purpose of this post.