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

Sundaram Textiles Ltd runs a spinning unit and a real estate arm. The board wants the real estate arm to be transferred to a new company, with Sundaram's existing shareholders receiving shares of the new company in proportion to their holdings, so that Sundaram itself receives no consideration. Which restructuring does this describe?

This is a demerger. The real estate undertaking passes to a new resulting company, and Sundaram's shareholders receive its shares in proportion to their existing holdings, so Sundaram receives no consideration. A sale or slump sale would bring cash to Sundaram instead.

  1. ADemerger, where the resulting company issues shares directly to the shareholders of the demerged companyCorrect
  2. BSlump sale for a lump sum cash consideration received by Sundaram
  3. CBuyback of shares by Sundaram from its shareholders
  4. DDivestiture by sale of the unit to an outside buyer for cash

Explanation

In a demerger, an undertaking moves to a resulting company and the shareholders of the demerged company get shares in the resulting company in proportion to their holdings. The demerged company receives no consideration. A slump sale or divestiture would bring cash to Sundaram, and a buyback does not transfer a business.

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