Hudson Labs Red Flags - Dirty Laundry
Welcome to our weekly reports featuring impactful and unusual disclosures as extracted by Hudson Labs' algorithms.
Filings from the week of July 19 - 23,2021.
VEDANTA LTD (VEDL)
20-F | Market cap: $15B
Subsidiaries of Vedanta granted loans and guarantees to its controlling shareholders and their affiliates without prior approval by Vedant’s board of directors. These loans were not appropriately valued when recorded. [1]
As a result new material weakness in internal controls in related party processes and approvals and determination of fair value of financial instruments were identified. [1]
Recent resignations include:
- GR Arun Kumar, Whole-Time Director & Chief Financial Officer, effective April 24, 2021.
- Krishnamurthi Venkataramanan, Non-Executive Independent Director, effective March 31, 2021
- Lalita D. Gupte, Non-Executive Independent Director, effective November 6, 2020
The company’s debt ratings were downgraded by both CRISIL and India Ratings during the year. [3]
- “Material weaknesses in internal controls have been identified by the Company and included in management’s assessment with respect to deficiencies related to the design and operation of controls (a) as a result of lack of board policies and procedures related to the authorisation of significant related party transactions, that the subsidiaries of Vedanta Limited undertook. Consequentially, certain subsidiaries of Vedanta Limited granted loans and guarantees to its controlling shareholders and their affiliates without a prior approval of the Board of Vedanta Limited since the prevailing internal policies and regulations did not mandate prior approval of the Board of Vedanta Limited; and (b) over determination of the fair values of financial instruments executed with related parties. As a result, the Company did not appropriately value and record the aforementioned loans and guarantees to its controlling shareholders on a timely basis.”
- “(a) Lalita D. Gupte stepped down from her post of Non-Executive Independent Director of the Company from close of business hours on Friday, November 6, 2020; (b) Krishnamurthi Venkataramanan ceased to be Non-Executive Independent Director of the Company from close of business hours on March 31, 2021 upon completion of his second and final term; (c) GR Arun Kumar resigned from the post of Whole-Time Director & Chief Financial Officer of the Company and was relieved from his position effective from close of business hours on April 24, 2021;”
- “On October 28, 2020, CRISIL downgraded the Company from CRISIL AA/Negative to CRISIL AA-/ Stable outlook on account of expectation of higher financial leverage.”... “On May 22, 2020, India Ratings & Research Private Limited downgraded Vedanta Limiteds rating from IND AA to IND AA-, while maintaining the outlook as negative on account of higher expected balance sheet leverage due to substantial decline in economic activity due to COVID-19 related lockdown.”
REXNORD CORP (RXN)
10-Q | Market cap: $7.5B
The increase in income from operations within the Process & Motion Control segment includes gains recognized on the sale of fixed assets, a non-recurring item. [1]
The company is planning a spin-off of their Process & Motion Control segment in the second half of 2021. [2]
In recent acquisitions, the majority of purchase price was allocated to goodwill and intangible assets. The December 2020 initial purchase of Hadrian for $101.3M included $43.0M goodwill and $32.4M customer relationships. An additional $0.2M was subsequently allocated to goodwill based on lower valuation of identifiable assets. [3]
- “Process & Motion Control income from operations during the three months ended June 30, 2021 was $66.8 million, or 20.6% of net sales. Income from operations as a percentage of net sales increased by 620 basis points year over year due to gains recognized on the sale of certain fixed assets, benefits from cost reduction and productivity initiatives and the favorable impact of higher year over year sales growth, partially offset by the benefit of temporary cost reduction actions in the prior year second quarter in response to the COVID-19 pandemic.“
- “Expected Spin-Off of Process & Motion Control Segment On February 15, 2021, Rexnord and Regal Beloit Corporation (“Regal”) entered into definitive agreements whereby Rexnord will separate its Process & Motion Control segment by way of a tax-free spin-off to Rexnord’s stockholders and then immediately combine it with Regal in a Reverse Morris Trust (“RMT”) transaction. Closing of this transaction is subject to various closing conditions, including the receipt of regulatory approvals, receipt of the approval of Regal and Rexnord stockholders (which each of Regal and Rexnord will solicit at special meetings of their respective stockholders at a later date), and other customary closing conditions. This transaction is expected to close during the second half of 2021.”
- “The preliminary purchase price allocations associated with the acquisition resulted in goodwill of $43.0 million ($37.0 million tax deductible), other intangible assets of $32.4 million (including tradenames of $0.8 million and $31.6 million of customer relationships), $17.1 million of fixed assets, $9.7 million of trade working capital and other net liabilities of $0.9 million. “... “The preliminary purchase price allocations for Hadrian were adjusted during the six months ended June 30, 2021, resulting in a $0.2 million increase in goodwill related to aforementioned cash payment received, partially offset by the refinement of the estimated fair value of the liabilities assumed.”
Other filings: changes to material agreements
AON PLC (AON) 2021-07-26 | 8-K | $58B
AON PLC and Willis Towers Watson PLC announced the termination of their business combination agreement, as a result AON will pay a termination fee of $1B.
MIDDLEBY CORP (MIDD) 2021-07-14 | 8-K | $10B
The Merger agreement between Middleby Corp and Welbilt Inc was terminated as Welbilt received a superior offer from Ali Holdings S.R.L. Middleby received a termination fee of $110M.
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