Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: ACCOUNTING STANDARD :: cpt :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: ACCOUNTING STANDARDS :: VAT RATES :: form 3cd :: due date for vat payment :: VAT Audit :: articles on VAT and GST in India :: empanelment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4%
« News Headlines »
 CBDT releases Income Tax Return statistics for last two fiscals
 CBDT issues second round of Certificates of Appreciation to tax payers for their contribution towards Nation building
 FinMin looks at cut in corporation tax
 Draft Rules for prescribing the method of valuation of fair market value in respect of the trust or the institution-Chapter XII-EB of the Income-tax Act, 1961- reg.
 India is moving towards a flawed GST
 ICAI to organise two-day international conference in Hyderabad
 Here's how to calculate tax payable on your capital gains
 Income Tax calculations for the financial year 2016-17
 CPE Events 17 October - 22 October 2016
 High Court raps I-T Department for wrong tax demand
  CBDT signs 5 advance pricing pacts with Indian taxpayers

ESOPs now offer bargaining power to employees in M&As
May, 07th 2008

In India, when takeovers happen, the promoters walk away with the lions share of the spoils. Minority shareholders benefit too, though not always.

But employees usually are left facing uncertainty. The growing trend of issuing employee stock options (ESOPs) may give them a new-found importance in M&A situations. This is seen in the case of Dabur Pharmaceuticals (Dabur), which is to be acquired by Fresenius Kabi, an international pharmaceutical firm.

Fresenius has acquired the promoter shareholding in Dabur at Rs 76.50 a share for Rs 782.6 crore. It is also making a 20% open offer as per Sebi norms at the same price.

The share purchase agreement between Fresenius and the Dabur promoters is contingent on certain events. Ajay Vij, CEO, will get Rs 2.7 crore as payment from Dabur as per his employment agreement due to the sale. Moreover, Fresenius will also acquire shares held by Ajay Vij and four other named employees, for Rs 1.77 crore and Rs 93.3 lakh, respectively. But this is not all. These employees have to surrender their ESOPs, too.

Fresenius aims to acquire a 75.7% stake in Daburs Rs 15.7 crore equity capital, a level which gives absolute control. But if one adds the ESOPs in circulation, then Daburs equity capital increases to about Rs 15.9 crore. Then, the new owners stake will fall below 75%.

Thus, one of the conditions of the acquisition is that Ajay Vij and four employees will surrender their ESOPs, getting about Rs 14-15 crore in cash in return. Other employees of Dabur Pharma, too, have an option to surrender their ESOPs and can get a consideration of about Rs 8-9 crore, depending on acceptance levels.

The price at which the ESOP holders are being compensated is Rs 94.81 or Rs 101.31, depending on the prevailing short-term capital gains tax (to be known once the Finance Bill is passed). This, at first, seems unfair because shareholders are being offered a lesser amount of Rs 76.50. Note that this money is being paid by Dabur and not the acquirer, yet that is no reason to affect share valuations.

The difference, according to a company official, is apparently due to the money being charged as income in the hands of the employees. At the highest tax slab, it will be taxed at 30% plus surcharge and education cess as applicable.

Instead of the ESOPs vesting over a period of time and then exercised later, we are giving an option to employees to surrender their ESOPs. They are being given a higher price to compensate for the 33% tax that will be applicable on this income, said Nikhil Kulshreshtha, company secretary and head-legal, Dabur.

The higher amount is also to compensate for the fact that these shares would have normally accrued over a period of time. He also stresses that this is just an option given to these employees. While that may be the case, the CEO and key employees had to surrender ESOPs as part of the acquisition agreement.

Minority shareholders may not take kindly to this view, as they pay tax too. But the company says that long-term shareholders will pay negligible tax on the profits earned from selling shares in the open offer. That may be true, though how many will sell at this offer price remains to be seen (just before the acquisition announcement, the market price was Rs 69).

This case is perhaps one of the few where employees have made a windfall from the sale of their company. Whether there is a need for some clarity on the pricing of surrendered ESOPs in such cases is, perhaps, a matter for Sebi to examine.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System developers CMS developers Content Management Solutions CMS Solutions CMS India Content Management System India CMS development India Website CMS Website Content Management India Portal CMS India CMS Outsourcing CMS Vendor Complete CMS Custom CMS Services

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions