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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Loss-making Tara Steel Ltd holds 70% of Vikram Cement Ltd, which is profitable and listed. The group decides that Tara Steel will merge into Vikram Cement, and Tara Steel's shareholders will receive Vikram Cement's shares, so that the transferee is the subsidiary. Which statement is correct?

This is a reverse merger. The parent company, Tara Steel, merges into its subsidiary, Vikram Cement, which survives and issues shares to the parent's shareholders. It is not a demerger or slump sale, because no division is split off or sold for a lump sum.

  1. AIt is a reverse merger, as the parent merges into its own subsidiaryCorrect
  2. BIt is a demerger, as the loss-making company is split
  3. CIt is a horizontal merger necessarily, as both are steel companies
  4. DIt is a slump sale, as shares are issued

Explanation

When the parent (here the loss-making holding company) merges into its subsidiary, with the subsidiary as the surviving entity, it is called a reverse merger. Nothing is split, so it is not a demerger. Issue of shares by the transferee is a feature of amalgamation, not slump sale, which is for lump sum consideration. The nature of the businesses (steel and cement) does not make it horizontal.

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