Mumbai: Companies listed on India’s flourishing stock exchanges are finding it increasingly difficult to go private by buying out minority shareholders, unlike the US where private-equity funds that have acquired stakes in large companies are delisting them. Several companies that have launched open offers to increase the promoters’ shareholding to 90%—the level of ownership that allows them to delist the company from the exchanges—have not been able to convince small shareholders to sell at, or even above, market prices.
“Few large public investors, who are too aggressive in their price expectations, often result in an open offer failing as the price offered by the acquirers and the value perception (of these investors) differs.
There is a bit of powerplay going on here due to which small shareholders, who wish to take advantage of an open offer, often get affected,” said T.V. Raghunath, executive director, investment banking, Kotak Mahindra Capital Company Ltd.
In some cases, such as Oracle Corp.’s open offer for i-Flex Solutions in January 2007, the proposed offer price of Rs2,084 per share was much higher than Monday’s closing price of Rs1,995.4 on the Bombay Stock Exchange.
“Minority shareholders often want an unusually high price to allow companies to reach the shareholding required to delist,” said Girish Nadkarni, chief operating officer, investment banking, IL&FS Investsmart Ltd. In the case of MphasiS, EDS, which targeted a 70.1% shareholding, managed to get only 50.1%. Foreign institutional investor Aberdeen Asset Managers Ltd held a 4.43% stake in the company in end-December 2006.
Essar Shipping and Logistics Ltd recently withdrew its open offer to public shareholders due to the lack of adequate response. The company needed to acquire about six crore shares to get to the required 90% shareholding from 76% currently, but it fell short by about one crore. The buyback saw the Ruias offer a floor price of Rs31.6 per share but shareholders bid (or asked, through a reverse bidding process) Rs3,000. “Some shareholders may have thought that even though the company delists, it may go public in future and they may get a better price then,” said a senior Essar Shippping official, who did not want to be identified.
“Corporates are paying top dollar, but there seems to be a disconnect between the expectations of abstaining shareholders, or perhaps they view the offer as being opportunistic and are trying to extract full value,” said Stuart Smythe, head of equity, India at Macquarie Securities (India) Ltd. Companies which do not succeed in delisting can still achieve their objectives and end up disadvantaging minority shareholders.
“For instance, nothing prevents us from selling all the assets of the listed company in which we own at least 76% to another wholly owned firm controlled by the promoters. We effectively gain control of the business and leave the listed company as an empty shell,” said the promoter-director of one of the firms, whose recent open offer did not succeed in reaching the threshold required for delisting. He did not wish either himself or his firm to be identified.
Mumbai’s stock market circles are also abuzz with rumours that capital markets regulator Sebi may raise the threshold required to delist the company: from a 90% holding by the promoters to 96%. But Sebi chairman M. Damodaran said no such move was being considered. “If it happens, a year or two from now we can’t say,” he added.