Transaction accounting under IFRS - Three body problem

[Leo]

Entity A has 65% interest over C and entity D has 35% interest over C.

However, if entity A want to buy the 35% interests from D, to whom entity A should transfer the money? Should it buy the 70% shares in C from B and transfer the money to entity B which will transfer the money in relation to the 49% to D or should it transfer the Delta directly to D? In that case, what would be the accounting in B?

Thanks

[Leo]

(1) If entity A pay cash to entity B to buy the 70% shares in C, and instruct B to do a dividend distribution, the result would be the same than (2) entity A directly paying B for the 35% worth.

However, if route (2) is chosen, what would be the accounting in entity B as it will not receive consideration and will lose 70% of the shareholding in C?

[Marek Muc]

Your diagram doesn't match the narrative part of your question.

[Leo]

I realized that this can only work by A buying the 70% of C from B. And then, D can get the benefit of a increased net assets in B. B can either distribute dividends to D or D can sell its shares in B. But it's not possible for D to only sell the 35% in C.

[DJP]

Hi Leo,

Your conclusion doesn't make sense. In order to get full control of the group comprising A, B and C, A needs to buy from D the 49% stake in B.

[Leo]

If my description was unclear, I said, for D to keep its mino interests of 49% in B, but only sell C to A. I reckon that it's a legal question, but view is D cannot do so directly. It will need B to sell it's shares to A first.

[DJP]

A controls B, so in theory it can make B sell it's 70% stake in C to A, unless there are indeed any legal impediments.

[Leo]

yes agreed, thanks!