Sebi softens stance, approves Gillette‘s MPS formula

After a long battle with the market regulator, Gillette India has finally gained Sebi’s nod for its shareholding plan to comply with the minimum public shareholding (MPS) norms.

In a departure from its usual stance, Sebi has granted its approval for SK Poddar – the Indian partner’s shareholding to be classified as public shareholding, reports CNBC-TV18's Ashmit Kumar. The current promoter shareholding is pegged at 88.9 percent, with Proctor & Gamble (P&G) accounting for 75.9 percent and the Poddar group holding 12.86 percent. Earlier this year, with an aim to comply with the MPS norms, Gillette had submitted an ambitious proposal before the regulator which featured a reclassification of Poddar’s shareholding as ordinary public shareholding. Gillette had proposed that Poddar would dilute stake from 12.9 percent to 8.9 percent and would sell the 4 percent shares to P&G at a 25 percent premium. As per this proposal, P&G’s holding would soar to 79.9 percent and it would then pare its holding to the required 75 percent level through an Offer for Sale (OFS). Sebi rejected this proposal, and the Securities Appellate Tribunal witnessed fierce battle with the regulator disallowing such an opportunity. SAT sided with the regulator and deemed this proposal as dubious, holding that such a proposal will comply with the MPS norms only in letter and not in spirit. SAT also questioned why other measures prescribed, such as OFS, institutional placement programme.(IPP), bonus and rights issue, had not been pursued. After the blow from SAT, Gillette chose not to appeal against the order in Supreme Court and made a fresh proposal before the regulator. It proposed that SK Poddar would dilute holding from 12.9 percent to 4.99 percent. The sub-5 percent levels of shareholding were designed to meet the regulator’s concerns on concentration of shareholding. Gillette also proposed that SK Poddar would terminate the Shareholder’s Agreement (SHA), would amend the Articles of Association, would resign as the chairman, and would relinquish all forms of control or rights over the company. Gillette reasoned that these steps were sufficient for reclassification of Poddar’s residual stake as ordinary public shareholding. Meanwhile, the proposal also provided for P&G to dilute its holding by 0.9 percent levels to meet the MPS threshold level of 75 percent. Gillette had reasoned that with the current promoter shareholding at 88.8 percent, offloading 13.8 percent to meet the 75 percent levels would overwhelm the markets. Gillette had argued in the proposal that the shares of Gillette had a low turnover and thin volumes. Offloading a large stake would not help achieve ideal price recovery, and would lead to a fall in prices that would hurt the minority shareholders. SK Poddar, also clarified, that this proposal was vastly different as it did not involve any the transfer of shares between the promoters. Sebi has granted its nod to this proposal, placing some stiff riders. Sebi has disallowed Poddar from buying any shares of Gillette India for the next one year. The regulator also clarified that if Poddar attempts to return as a promoter, he would have to necessarily conduct an open offer. However, despite the riders, the market cheered the news with the shares rallying by over 10 percent. Meanwhile, Sk Poddar today clarified that he would be conducting a joint OFS with P&G to dilute the joint holding by about 9 percent and that the process would be completed before year-end. Also, having sought 25 percent premium in the first offer, SK Poddar would again be seeking an appropriate severance package from P&G. While the talks are on, Sebi has provided for the severance package to be paid out from P&G to SK Poddar, without affecting the cash balance of Gillette.