PART - III - Udyog Bandhu

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(xi)the bidder or if the bidder is a Consortium then any member of suchConsortium not being qualified to participate in the process pursuant to theGovernment of India office memorandum No. 6/4/2001-DDII dated July 13,2001 as amended from time to time.10.2 If information becomes known after the bidder has been qualified, at any stage, toproceed with the Strategic Sale process, which would have entitled Government to rejector disqualify the relevant bidder/Consortium, Government reserves the right to reject ordisqualify the relevant bidder/Consortium at the time, or at any time, such informationbecomes known to Government. Where such party is a Consortium, Government maydisqualify the entire consortium, even if it applied to only one member of theConsortium.10.3. Government determination that one or more of the events specified under paragraph 10has occurred shall be final and conclusive.11. Formats for submitting EOIs by interested parties11.1 The formats for submitting Expression of Interest, statement of Legal Capacity andRequest For Qualification (RFQ) are enclosed as Annexure <strong>III</strong>, IV, and V.136
Annexure - VIIVALUATION METHODOLOGIES1 Disinvestment Commission's RecommendationsKeeping in view the above problems regarding valuation specific to a PSU, the issue wasdiscussed in detail by the Disinvestment Commission in its First Report. Underlining theimportance of valuation, the Commission felt that the valuation of equity of a firm gainsimportance in case of disinvestment of companies which are not listed or in cases where capitalmarkets may not fully reflect the intrinsic worth of a share disinvested earlier.Disinvestment Commission, in its Discussion Paper while emphasizing that valuation shouldbe independent, transparent and free from bias, has discussed three methods of valuation:(i) The 'Discounted cash flow' (DCF) approach relates the value of an asset to the presentvalue of expected future cash flows of the asset.(ii) The 'Relative valuation' approach is used to estimate the value of an asset by looking at thepricing of comparable assets relative to a common variable like earnings, cash flows, bookvalue or sales.(iii) The 'Net asset value' approach provides another basis for valuation.Regarding the application of Valuation Methods, Disinvestment Commission felt that the useof a particular method of valuation will depend on the health of the company being evaluated,the nature of industry in which it operates and the company's intrinsic strengths. The depth ofcapital markets will also have an impact on the valuation. For example, in the United Kingdom,the London Stock Exchange has helped in creating markets by enabling credible pricediscovery for the shares of privatised companies listed on the exchange. Although valuationmethods will indicate a range of valuations, Disinvestment Commission felt that somediscounts might need to be applied for arriving at the final value depending on the liquidity ofthe stock and the extent of disinvestment:a) ‘Lack of marketability' discount takes into account the degree of marketability (or the lackof it) of the stocks being valued. This is applicable especially to cases, which had beendisinvested earlier and have been referred for disinvestment again. Discount on thisconsideration stems from the fact that an investor will probably pay more for a liquid stockthan for a less liquid one. However, the concern of an overhang of supply may adverselyaffect valuation even for liquid stocks.b) Disinvestment Commission felt that the extent of disinvestment in core, non-strategic &non-core PSUs would have a bearing on the valuation process. The transfer of acontrolling block may help to reduce the discount that has to be applied, as the prospectiveinvestor would be willing to pay a certain 'control premium' towards enhancedmanagement participation, board control and majority shareholder rights.c) If all the businesses of a PSU are not equally profitable, it may be necessary to restructurethe business before disinvestment. However, if this is not possible, a minority discountmay have to be applied.137
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Executive Summary1. The procedure t
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Disinvestment - Process Flow ChartD
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2. The Core Group Committee of Secr
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Legal advisors examine the followin
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CHAPTER - IIVARIOUS METHODOLOGIES F
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- Ensures broad based shareholding-
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- Enhances visibilityDisadvantages-
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Regulation: RBI restrictions on ban
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- Low cost of transaction- Relative
Page 24 and 25: CHAPTER - IIISTRATEGIC SALEThe vari
Page 26 and 27: 3. Management Organizationi) An ove
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Page 30 and 31: pertaining to employer - employee r
Page 32 and 33: 4. Management of the company: It de
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Page 36 and 37: 3.2.8 Submission of final bidDetail
Page 39 and 40: know what bid the others have submi
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Page 43 and 44: CHAPTER -IVVALUATIONIn any sale pro
Page 45 and 46: SECTION 9-ANOTICE OF CHANGENo emplo
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Page 49 and 50: Substantive Clauses:Notwithstanding
Page 51 and 52: Annexure-IAgreement For Advisory Se
Page 53 and 54: NAME) will be paid a drop-dead fee
Page 55 and 56: a) The conflicts of interest and in
Page 57 and 58: 13. Governing LawThis Agreement sha
Page 59 and 60: ii Notwithstanding the foregoing, t
Page 61 and 62: Annexure-IIGuidelines for Advisors
Page 63 and 64: Annexure-IIIEXPRESSION OF INTEREST(
Page 65 and 66: Annexure-IVStatement Of Legal Capac
Page 67 and 68: 10. Salient features of financial p
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Page 81 and 82: Terminal Value =105 * (1 + 0.05) /
Page 83 and 84: It was also recognized that valuati
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PART - III - Udyog Bandhu

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