The Hindu Business Line : Henkel SPIC board okays merger with Henkel India

As an outcome of the merger, the deferred revenue expenditure of Rs 250 crore and the accumulated losses of Rs 55 crore in the books of Henkel SPIC will be wiped-off. These amounts will get set-off against the Rs 178-crore in the `share premium account'. To compensate for the higher write-off on the asset side, `fixed assets' and `goodwill' have been upvalued.

Both the companies acquired from Shaw Wallace a few years ago - Calcutta Chemicals and Detergents India - have been put to use for the restructure. Calcutta Chemicals has been renamed as Henkel India Ltd and used for merging Henkel SPIC into. Detergents India has been renamed as Henkel Marketing India Ltd and will market all products that Henkel SPIC manufactures and also those imported from the German promoter, Henkel KGaA, Germany.

Under the proposed arrangement, Henkel SPIC will sell its products to Henkel Marketing India.

All the marketing and brand promotion expenses will be borne by Henkel Marketing, which is today a wholly owned subsidiary of Henkel SPIC. Henkel Marketing will be supported (through easy loans) by the German parent.

Mr Muthiah said that the reverse merger was also necessitated by the fact that the new accounting standards (AS-26) require that all deferred revenue expenses be charged-off to profit and loss account. Henkel SPIC made a net profit of Rs 5 crore last year. As such, the company's profit and loss account would not be able to take a charge of Rs 250 crore.

There are three implications of the reverse-merger.

One, all the accumulated losses in the books of Henkel SPIC will be eliminated.

Two, Henkel SPIC's turnover will depend upon the `transfer price' at which it will sell its products to Henkel Marketing India.

Three, Henkel KGaA could bring in its products into India directly, through Henkel Marketing India. The profits from these products would flow as dividend income to Henkel SPIC, a company not connected with the imported products. Therefore, Henkel KGaA might raise its stake in Henkel Marketing, perhaps through a preferential offer of shares.

Meanwhile, Henkel SPIC has reported a lower turnover and profit for the quarter ended September 2004, the company's third quarter.

Turnover was Rs 57 crore compared with Rs 97.87 crore. Net profit was Rs 89 lakh, against Rs 1.53 crore.

The company has said in the footnote to the statement of results that the turnover for three months ended September 30 is lower because "Henkel SPIC India realigned its activities to focus on manufacturing. This is reflected in the turnover drop. Nevertheless, the consolidated results reflect growth in sales from Rs 271 crore to Rs 296 crore."

The consolidated results also show a drop in net profit. The company has reported a loss of Rs 39 lakh in the first three quarters of the current year, against a profit of Rs 1.29 crore in the previous year period.

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