Tribunal Approves Pharmacy Business Acquisition Scheme, Enhancing Growth and Shareholder Value

The Tribunal approved the Scheme of Arrangement for the acquisition of the front-end retail pharmacy business of a listed public limited company by an unlisted public limited company for a total consideration of Rs. 527.80 Crores. The Scheme aimed to divest the pharmacy business to focus on core services, enhance strategic flexibility, accelerate growth, and unlock shareholder value. The Tribunal found the Scheme compliant with statutory requirements, beneficial for the companies, and not objected to by regulatory authorities. The transfer was sanctioned, with directions for compliance and implementation.

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Issues Involved:
1. Approval for the Scheme of Arrangement.
2. Rationale and benefits of the Scheme.
3. Compliance with statutory requirements.
4. Valuation and consideration for the transfer.
5. Observations and final decision of the Tribunal.

Issue-wise Analysis:

1. Approval for the Scheme of Arrangement:
The Transferor Company, a listed public limited company, and the Transferee Company, an unlisted public limited company, approved the acquisition of the front-end retail pharmacy business of the Transferor Company by the Transferee Company for a total sale consideration of Rs. 527.80 Crores under the Scheme of Arrangement. The Transferor Company sought to transfer its "Divestment Business" to the Transferee Company on a going concern basis by way of slump sale, including assets, employees, and liabilities.

2. Rationale and Benefits of the Scheme:
The Scheme aimed to divest the standalone pharmacy business to allow the Transferor Company to focus on its core hospital and healthcare services. The benefits included:
- Utilizing proceeds towards growth and enhancement of other businesses.
- Enhancing strategic flexibility and management focus.
- Accelerating growth and unlocking value for shareholders.
- Strengthening Direct-to-Consumer operations and enhancing the private label business.
- Enabling a foray into Digital/Online Pharmacy.

3. Compliance with Statutory Requirements:
The Tribunal directed the companies to issue notices to various statutory and regulatory authorities, including the Regional Director, RoC, Income Tax Department, RBI, and State Drug Control Authority, and to publish notices in specified newspapers. The Regional Director reported no objections, and the Income Tax Department stated that the requirement to send notice was procedural and did not impact their rights under the Income Tax Act. No objections were raised by other statutory authorities.

4. Valuation and Consideration for the Transfer:
The Valuation Report by M/s. B S R & Associates LLP determined the enterprise value of the Demerged Undertaking at Rs. 5,278 million as of 09.11.2018 using the Discounted Cash Flow Method. The Transferee Company was to discharge a lump sum consideration of Rs. 527.80 Crores to the Transferor Company. The Tribunal referred to past judgments to affirm that consideration could be paid to the Transferor Company without allotting shares to its shareholders, as part of commercial wisdom exercised by the shareholders.

5. Observations and Final Decision of the Tribunal:
The Tribunal analyzed the Scheme in detail, including the transfer of assets, liabilities, employees, and legal proceedings. It was clarified that the scheme did not grant any exemption from taxes or other charges. The Tribunal sanctioned the Scheme, finding it beneficial and not detrimental to the shareholders' interests. The appointed date for the Scheme was set as 1st April 2019, and the companies were directed to deliver a certified copy of the order to the Registrar of Companies for registration.

Dispositive Reasoning:
The Tribunal concluded that the Scheme was in compliance with statutory requirements, beneficial for the companies involved, and did not face any objections from statutory authorities. The Scheme was sanctioned, and the companies were directed to comply with the necessary formalities for its implementation.

Order:
The Tribunal ordered the transfer of properties, rights, liabilities, and employees of the Demerged Undertaking to the Transferee Company, the discharge of the lump sum consideration to the Transferor Company, and compliance with the appointed date and registration requirements. The Company Petitions were allowed on the specified terms.

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