Page 128 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 6: External Reconstruction of Companies

(b) If these are paid by Sunita Ltd. through Kavita Ltd. notes
Sunita Ltd. Dr. 2,500

To Cash A/c 2,500
Cash A/c Dr. 2,500
To Sunita A/c 2,500

Task Discuss the concept of purchase consideration.



Case Study sell-offs

sell-off is the sale of a business or subsidiary of the parent company to another firm
outside the group, generally resulting in a payment of cash to the parent. In theory,
A sell-offs are the least complex of restructuring structures.
Acquirers can usually be divided into two groups: strategic buyers and financial buyers.
Strategic buyers are those who are interested in acquiring a business for strategic purposes
(e.g., increasing market share, creating economies of scale or exploiting synergies).
Strategic buyers are typically companies engaged in the same business as, and therefore
competing with, the business or company under consideration. In contrast, financial buyers
are those who are interested in acquiring a business to secure a financial return in the short-
to medium-term before selling the business or otherwise exiting the investment. Financial
buyers are likely to be buyout firms.
Buyout firms raise funds in order to be able to take equity stakes in companies though
funding and assisting with management buyouts (MBOs) and leveraged buyouts (LBOs).
Buyout firms generally focus on established companies with potential to grow after
transformation. Non-core divisions and subsidiaries of large public companies are their
typical targets. For example, as part of its restructuring efforts, Nissan Motor sold its
shares in at least 24 subsidiaries from 2000 to 2002. 17 were sold to strategic buyers and
the remaining 7 were sold to buyout firms (Figure 1 below). It was expected that, like
Nissan, large companies would sell off non-core divisions and subsidiaries as they pursued
restructuring initiatives. Fuelled by expectations, the number of new buyout firms rose
significantly. However, some buyout firms have been unable to find places to invest, as
evidenced by the withdrawal of some such firms (e.g., 3i) from Japan.

Source: Abeam Research
figure 1: nissan’s sell-offs to subsidiaries to Buyout firms
Contd...

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