The four major mergers which stand to be affected by the new duty are Brooke Bond Lipton India Ltd with Hindustan Lever, Burroughs Wellcome India with Glaxo India, Roussel India with Hoechst and Sandoz India with Hindustan Ciba-Geigy.
In all cases, the registered office of the merged entity is in Mumbai. Top corporate sources say rather than pay the exorbitant rates demanded by the government they may prefer to shift their registered offices outside the state.
Companies could settle for other alternatives like substituting the merger with takeover where stamp duty is much less at 0.5 per cent of the cost of acquisition through public offer.
On September 4, the state government issued an ordinance promulgating the 10 per cent duty. But government sources say this is only a temporary measure and is likely to be reviewed due to strong pressure from corporates. The duty could be cut to 1-2 per cent.
Companies feel the same way. A Hindustan Lever spokesman said the government is aware of the problem and is expected to take corrective measures.
Even if the current duty remains, the Lever-Brooke Bond merger will not be affected, he added. The company can examine other options. Lever's burden is estimated at between Rs 150-160 crore.
According to the current proposal, 10 per cent stamp duty is levied on the value of new shares issued by the transferee company and on the consideration paid in pursuance of the amalgamation.
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The Lever-Brooke Bond merger is before the high courts of Mumbai and Calcutta. The share swap ratio of 9:20 has already been announced.
The other proposals are still being finalised. Glaxo and Burroughs Wellcome have only integrated their respective boards. The companies continue to function separately. Same with Hoechst and Roussel. In case of Ciba and Sandoz, preparations are in a preliminary stage.
Says Sunil Kothare, partner at Parikh Joshi & Kothare, a Mumbai-based CA firm, "If there is no duty reduction, there are not too many options for the companies except to shift their offices." If this happens and triggers off a trend, Maharashtra would not only lose a lot of potential revenue, but also its image.
"Shifting of registered offices is simple. It needs only shareholder approval and approval of the Company Law Board. The second one will take some time, but is not too difficult," explains Kothare.
In many parts of India, there is little or no stamp duty. Delhi and Andhra Pradesh have no stamp duty. Same with the Union territories.
The companies could also withdraw the merger proposal and substitute it with a takeover. Here the stamp duty is small, but the total amount involved will be large.
After buying management control, the transferee company will have to make a public offer to acquire a further 20 per cent according to the Sebi guidelines. Given the high profile nature of all these companies and their high market prices, this could prove a costly affair.
The other option is to transfer assets like Sandoz India did last year. Taking advantage of lower stamp duty, the multinational hived off its chemicals business to a new entity called Clariant India.
Later, the pharmaceutical business was transferred to its subsidiary, Sandoz Exports, which was renamed Sandoz India. This way, the company saved on both stamp duty and capital gains tax.
Duty on asset transfers vary depending on the nature of the assets. But is much less than 10 per cent applicable while issuing new shares by the transferee.
Some of these companies could also try the novel route of changing the transferee company.