Parimal Pharma Ltd. sold its few brands to another pharmaceutical company namely Areva Ltd. for a sum of ₹6,000 crore. Number of options were available to Parimal Pharma Ltd. to deploy these funds to generate profits for

CS Professional · Capital Commodity and Money Market · PYQS · June 2018
Parimal Pharma Ltd. sold its few brands to another pharmaceutical company namely Areva Ltd. for a sum of ₹6,000 crore. Number of options were available to Parimal Pharma Ltd. to deploy these funds to generate profits for the company. A team was constituted to decide and finalize the following proposals: (I) ₹2,000 crore shall be invested in the equity of various companies as a strategic partner. (II) ₹1,500 crore shall be used to provide inter-corporate loans as to provide yield of 12%. (III) ₹1,500 crore shall be used to buy back its own equity shares having face value of ₹10 each at a price of ₹3,000 per share (present market price of ₹2,400 per share) being 10% of the paid up equity share capital of the company by way of tender route wherein promoters also intend to participate. Promoters hold 75% equity shares in the company. (IV) ₹500 crore were allocated to a team which will actively participate in capital and commodity market to generate a return of 15%. Proposal III (c) ₹1,500 crore shall be used to buy back its own equity shares having face value of ₹10 each at a price of ₹3,000 per share (present market price of ₹2,400 per share) being 10% of the paid up equity share capital of the company by way of tender route wherein promoters also intend to participate. Promoters hold 75% equity shares in the company. (iii) State the reservation to be made for small shareholders together with the relevant statutory provisions thereon.

Answer & Explanation:

Proposal III(c)(iii) - Reservation for Small Shareholders Number of Shares to be purchased under Buy Back = ₹1,500 Crores / ₹3,000 = 50,00,000 shares. Thus, the total number of shares outstanding = 5 crore (Buy Back being 10% of total outstanding). 15% should be reserved for the small shareholders = 50,00,000 x 0.15 = 7,50,000 Shares or ₹225 Crores. Entitlement: To be decided on the record date based on shares held. All the shareholders holding the shares in the market value of less than ₹2 lacs as on record date shall be deemed as 'Small Shareholders'.

Topics: Buyback of Shares

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