SYMBIOSIS CENTRE FOR MANAGEMENT & HUMAN RESOURCE DEVELOPMENT

Associated Distilleries Ltd. (ADL) and Globus Spirits Ltd. (GSL)

Mergers and Acquisition Sem- IV
Assignment-1 Roll No. 2010G42 Siddhartha Pawar

Name: Siddhartha Pawar Roll no. 2010G42

Mergers & Acquisition Assignment-1

Associated Distilleries Ltd. (ADL) and Globus Spirits Ltd. (GSL)

Background ADL and GSL
Associated Distilleries Limited (ADL) company was incorporated on 7th July 1989 as a public limited company at Calcutta and obtained the Certificate for Commencement of Business on 31st August 1989 and is engaged in the business of manufacturing, marketing and sales of industrial alcohol comprising rectified spirit, Extra Neutral Alcohol (ENA), Country Liquor. The company is also the leading supplier of country liquor to the Government of Madhya Pradesh. The Company was engaged in the manufacture of potable alcohol with an installed capacity of 270 LLPA (Lakh Proof litres per annum) at Madhya Pradesh. The company proposed to increase the production of ENA and IMFL to 86.4 LLPA and 9.5 lakh cases respectively. Globus Spirits Limited (GSL) was incorporated in the year of 1993-94 as a public limited company as Globus Agronics Limited. The Company has a brand portfolio of their own in the country liquor segment, such as Rana, Rajasthan No 1, Ghoomar, Samalkha No 1, Samalkha ki Saunfi; and in IMFL segment, such as White Lace Gin, White Lace Vodka, Samurai Gold Extra Rich Blend Whisky, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky and Hannibal Legendry Rum. They also cater to the Indian brands in the IMFL segment, such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No 1 Brandy and Officer's Choice XXX Rum. In April 2005, they commenced their operations at Distillation Plant at Samalkha Unit. The name of the company was changed from Globus Agronics Ltd to Globus Spirits Ltd with effect from January 23, 2007. In January 2009, the company expanded their IMFL repertoire in the state of Rajasthan by launching two new products, namely Hannibal Legendary Rum and 20-20 Premium Whisky. The company is in the process of installation of two Multi-Pressure Distillation Plants for the production of Extra Neutral Alcohol, at the rate of 35,000 liters per day from grains and molasses, one at Samalkha in Haryana and the other at Behror in Rajasthan.

Benefits of the Merger

During the year 2011-12, the demerged undertaking of ADL has been merged into Globus Spirits Limited (GSL) on a going concern basis with effect from April 1, 2010, after GSL received Delhi High Court's approval for the merger of Associated Distillers Ltd with itself. The merger is expected to result in a stronger footprint in the Country Liquor segment across Haryana & Delhi and also augment the contract manufacturing business of Globus Spirits Ltd. The merger takes GSL's capacity to 84.4 million bulk litres from 70 million bulk litres and is expected to translate into a higher market share in the CL segment while further strengthening bottling ties-ups, the company said. So, now the company owns and runs three distilleries of a total capacity of 86 million liter per annum and with bottling capacity of close to 1.5 million a month. Approximately Rs 75 crore will be the addition to GSL revenue. The demerged undertaking of ADL is located in Hissar, Haryana. The present installed capacity of ADL is 14.4 million BL. ADL operates in the two states of Haryana and Delhi and has a market share of 10% in Haryana and 10% in Delhi. ADL also has a bottling tie up with ABD India in Haryana. The ADL plant has shown increased operating efficiency since its revamping in October 2009 and EBITDA margins have grown from 12.9% in FY2010 to 21.1% in FY2011. The merger of the Demerged Undertaking of ADL into GSL would result in greater synergies and operational efficiencies which would translate into improved performance going forward.

GSL currently operates two distilleries at Behror in Rajasthan and Samalkha in Haryana which have a combined capacity of 70 million BL per annum. Haryana is a huge country liquor market; it's about 2.5 million cases a month.

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Name: Siddhartha Pawar Roll no. 2010G42

Mergers & Acquisition Assignment-1

Between the two distilleries, one is at Samalkha, which already was part of Globus Spirits and now there is Associated Distilleries. So, we would be controlling about 33% of the market. Thus, this is the first biggest synergy.

Stock Market Movement

The board has approved the distribution ratio of 1:6 for the merger of the demerged undertaking of ADL into GSL i.e. for every 1 equity share of ADL of Rs.10 each fully paid up, 6 equity shares of Rs.10 each fully paid up will be issued according to the valuation criteria suggested by E&Y based on the CCM, DCF Market Price & the NAV method to value companies. GSL has to issue additional 3.24 million shares which will take the post dilution equity share capital of GSL to 22.99 million shares of face value Rs. 10 each. Stock prices of both the companies could be seen passing through dynamic phase since there is an announcement of the merging ADL into GSL in the month of September 2011. Percentage change in Stock prices of GSL has witnessed downward trend, where as ASL stock prices percentage variation is positive after the merger.

Potential Driving Forces behind the Merger

The Merger was a horizontal merger between two alcohol manufacturing company. GSL definitely got benefitted from the merger. 1. 2. 3. 4. 5. Capacity enhancement expansion Market share increase in Country Liqour market (33%). Revenue gain of INR 75 Cr from the merger. Raw material procurement at economic rate. Stock-to-stock payout.

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