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SES tells shareholders to vote against Fresenius move to delist

SES says Fresenius violated Sebi guidelines on OFS sales unless it has ‘valid and acceptable reasons’
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First Published: Wed, Apr 24 2013. 12 50 AM IST

New Delhi: Stakeholders Empowerment Services (SES), a shareholder-advisory firm, has recommended that stockholders of drug maker Fresenius Kabi Oncology Ltd (FKOL) vote against a board resolution that will allow it to delist from Indian stock exchanges.
Mumbai-based SES has said this in a report, which Mint has reviewed.
Fresenius Kabi Oncology (earlier known as Dabur Pharma Ltd) is controlled by Fresenius Kabi (Singapore) Pte Ltd, PAC Fresenius Kabi Austria GmbH, Fresenius SE and Fresenius Finance BV, and is listed on BSE and the National Stock Exchange. Dabur Pharma Ltd had sold the company to the Singapore unit of Germany’s Fresenius Kabi AG in 2008.
On 18 April, Fresenius Kabi Oncology informed the exchanges about its plan to delist based on a 16 April letter from Fresenius Kabi (Singapore) Pte Ltd “notifying the company of its intention to make a voluntary delisting offer to the public shareholders of the company”.
It has invited shareholders to vote through a postal ballot on its decision by 17 May.
Following the purchase of Dabur Pharma, Fresenius Kabi Oncology reduced its promoter shareholding to 90% from 90.89%. Under the listing agreement with BSE and National Stock Exchange, it is required to maintain at least 10% public shareholding at all times.
Further, on 30 May 2012, the company received a letter from its parent to reduce promoter shareholding to 75% by 30 June 2013. This was to be done via the offer for sale (OFS) route. This route typically enables promoters to dilute their stakes in listed companies using an exchanged based bidding platform.
Following this, on 12 October, the promoters cut their stake to 81%.
“What factors changed the plans of the company from increasing their public shareholding through the OFS route, with a view of achieving compliance with the minimum public shareholding requirements, to delisting the shares, all within the span of six months?” SES asks in its report.
In an emailed response to a detailed questionnaire by Mint, the company said that after October “there has been a change in the India strategy of the promoters, due to certain extraneous events”.
“A routine inspection conducted by the US FDA (Food and Drug Administration) at the Kalyani (West Bengal) plant of the Indian company brought forward certain GMP (good manufacturing practice) non-conformities in relation to manufacturing, documentation practices and product testing. FKOL (Freseneius Kabi Oncology) voluntarily put the production at the plant on hold in February 2013, in order to address these issues,” the company said. “Being a listed company in India, events of this nature, which are rather minor from the group perspective had to be made public through the stock exchanges in order to comply with the applicable Indian listing conditions,” the company further said. The company said that it is of the view that “it is in the interest of the group as a whole to delist the equity shares of the Indian company from the stock exchanges”. Doing this, it says, will enable Fresenius “to move towards full ownership and integrate the Indian company with its global operations”, and “also provide existing public shareholders an opportunity to exit the company at an attractive price”.
SES also questioned the rationale behind fixing the quantum of 9% share sale via the OFS route and if the company had “tried to exploit a regulatory vacuum”?
“No. In fact, we cannot see that the regulator created any vacuum,” the company response said.
According to guidelines issued by capital markets regulator Securities and Exchange Board of India (Sebi), companies not figuring in the top 100 in terms of market capitalization can sell shares via the OFS route only if they want to increase their public shareholding.
Citing regulation 17 of Sebi’s norms on delisting of equity shares (notified in 2009), the advisory firm said that after selling a 9% stake in October, it would, in fact, become easier for the company to delist, as to do so it would have to reach a promoter-holding level of 90.5%, as against 95% if it had not sold the stock.
“Pre-(October) OFS institutional shareholding was less than 2%. Assuming that all institutional investors participated in the delisting offer (if made prior to the OFS), the promoters would have had to buy the remaining 3% shares from non-institutional shareholders (numbering more than 44,000) to be eligible for delisting. Post-OFS, institutional investors have over 9% shares. If the promoters buy institutional shareholdings and shares held by body corporates (who own 2% of the shares) through an open offer, the promoters would be able to achieve the minimum offer size of 9.5%.” the SES report says.
“Therefore, keeping in mind that delisting offers often fail due to lack of participation by retail investors, it appears that the OFS has increased the possibility of a successful delisting offer, especially keeping in view the returns that would accrue to institutional investors,” it adds.
The advisory further said “the company may be ineligible for OFS route if it had no intention of increasing public holding to minimum 25%”.
Fresenius Kabi Oncology has violated Sebi guidelines on OFS sales unless it has “valid and acceptable reasons (acceptable to Sebi)” for changing its plans, SES said.
The company, however maintains that this is not the case.
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First Published: Wed, Apr 24 2013. 12 50 AM IST
More Topics: SES | Dabur | Pharma | Fresenius |
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