Advantages of parent-subsidiary merger
The corporate sector is on a merger spree post COVID-19 as parent firms reduce multi-layered structure and synergise operations for better 'management oversight' and reducing various associated costs. ITC, Marico, Tata Power, Tata Motors and BASF are some of the large corporates that have undertaken merger of subsidiaries with the parent for operational efficiencies , better utilisation of resources and maximisation of shareholder value.
The corporate restructuring is part of the larger scheme of liquidity and working capital management post COVID-19. In fact, corporates are re-looking at real estate (office), infrastructure facilities, manpower rationalisation, renegotiating rentals and reducing marketing spends.
Experts suggest the corporate restructuring will gain momentum on account of slowdown in the economy and new learnings post-COVID-19, especially work from home and traction in digital medium.
Take, for example, the FMCG major ITC has decided to merge its three wholly-owned subsidiaries -- Sunrise Foods ( spices business ), Hobbits International ( food processing ) and Sunrise Sheetgrah Private Ltd -- with itself. ITC has done the restructuring to rationalise multiple entities to ensure optimal business structure. "The amalgamation would reduce replication of administrative processes and lead to optimum utilisation of resources," says the company. In fact, the ITC had acquired these businesses in an acquisition in July this year.
Another FMCG major Marico merged its wholly-owned subsidiary Marico Consumer Care with itself. The subsidiary houses various intellectual property rights which are licensed to parent. The objective of merging Rs 25 crore-plus asset size subsidiary is to eliminate a multi-layered structure and reduce compliance and other operational costs.
The Tata Group Tata Power has got an NBFC Af-Taab Investment Company under its fold with the objective of streamlining the corporate structure and consolidation of assets and liabilities.
The speciality chemical firm BASF India has recently decided to merge its subsidiary BASF Performance Polyamides India with itself. The company says the merger will ensure focussed management which will ultimately result in the efficiency of management and maximising value to the shareholders.