The Securities Appellate Tribunal (SAT) has asked Daiichi Sankyo Company to pay Rs 160 a share to Zenotech Laboratories’ shareholders, against Rs 113.6, in its open offer to minority shareholders. When Daiichi acquired a majority stake in Ranbaxy Laboratories Ltd in June 2008, it also gained control of Zenotech, thanks to Ranbaxy’s 46.7% stake in the company. And to comply with the takeover regulations, Daiichi had to make an open offer to Zenotech’s shareholders.
Here’s where it becomes interesting. Zenotech’s original promoter was Jayaram Chigurupati, who still owns a 26% stake in the company. Ranbaxy had acquired a stake from the promoter group at Rs 160 a share in October 2007, and also made an open offer at the same price. When Daiichi acquired Ranbaxy, Zenotech’s shareholders thought they would get Rs 160 in the open offer. But Daiichi offered Rs 113.6, based on its interpretation on takeover regulations and the open offer price that applies in the case of indirect acquisitions. The matter went to Sebi, which found nothing amiss with the offer price.
Chigurupati and another shareholder then appealed to the SAT, which then probed into whether Daiichi erred in computing the open offer price. They have won the order and this gives a new perspective on indirect acquisitions.
Takeover regulations specify different methods for calculating the price, from which the highest is chosen. The dispute in this case is only about one method, which deals with the price for any acquisition of Zenotech’s shares, by Daiichi or any person acting in concert, in a 26-week period. This period is either calculated from the time Daiichi made an announcement to Ranbaxy’s shareholders about acquiring a stake in the company, or from the time Daiichi made the announcement to Zenotech’s shareholders. The higher price is to be taken. Daiichi‘s postion was that this wouldn’t apply to it as it had not acquired any shares of Zenotech; it had only acquired shares of Ranbaxy.
But the shareholders’ contention was that Ranbaxy had acquired shares from Zenotech’s shareholders in the 26-week period, prior to June 16 2008. Daiichi’s contention was that the two were not acting in concert on that date. SAT ruled that, while this may be the case, the two were acting in concert when the open offer was made to Zenotech’s shareholders. This date was January 19, 2009. Since Ranbaxy was a person acting in concert, and had acquired shares at Rs 160 in the 26-week reference period, Daiichi was obliged to pay the same price to Zenotech’s shareholders.
The judgement is important for future indirect acquisitions, for calculating the open offer price. It extends the period used for calculating the open offer price, in an indirect acquisition. In this case, while the announcement was made in January 19, 2009, the price paid by Ranbaxy during January 2008 was used as a reference. The SAT order thus brings a new perspective to indirect acquisitions. If Daiichi appeals, the outcome may change. This case also addresses another key issue, of how minority shareholders benefit because of a large shareholder’s resolve. Left to themselves, minority shareholders would have perhaps voted with their feet, selling out Zenotech’s shares rather than taking up litigation. Zenotech’s shareholders stand to get 40% more for their shares as a result of this case. That should be enough justification for more shareholder activism.