Vote against Pantaloon's fashion biz demerger: InGovern
Proxy Advisory firm InGovern Research has urged shareholders of Pantaloon Retail to vote against the resolution to demerge the fashion business into wholly owned subsidiary Future Lifestyle Fasions.
February 20, 2013 / 08:37 IST
Moneycontrol Bureau
Proxy Advisory firm InGovern Research has urged shareholders of Pantaloon Retail to vote against the resolution to demerge the fashion business into wholly owned subsidiary Future Lifestyle Fashions, citing dilution of direct voting rights of publilc shareholders and disclosure and transparency issues related to material scheme related documents among other reasons.Pantaloon Retail (PRIL) and Future Ventures India (FVIL) through a composite scheme of arrangement are demerging fashion business into PRIL's wholly owned subsidiary Future Lifestyle Fashions Limited (FLFL). Simultaneously, FVIL will also demerge its fashion business, including Indus-League Clothing and Lee Cooper India into FLFL. Shareholders of both PRIL and FVIL will get FLFL stock. Future Group head Kishore Biyani has said FLFL will be listed on the stock exchanges.A court convened meeting of shareholders will be held on March 4th, 2013 in Mumbai in relation to the scheme of arrangement.The move is seen as a means to focus on the fashion business through one company. The rationale behind the arrangement is to simplify the group structure, unlock value for shareholders, and achieve operational and managerial efficiencies. FLFL's revenues as of Dec 2013 are seen around Rs 3,100 crore, according to InGovern.However, the scheme of arrangement raises several corporate governance concerns, it says.Post the scheme of arrangement, promoter group entities and PRIL will together hold 51.33 percent in FLFL, giving them majority voting control, according to InGovern. It further points out that there will be a same share exchange consideration for both equity and DVR shareholders of Pantaloon Retail."It is to be noted that the voting rights attached to DVR shares were changed from 1/10th of PRIL equity shares to 3/4th of PRIL equity shares and tabled for shareholder approval at a meeting on March 5th, 2012. As of the date of this meeting, promoters held 46.57% of the DVR shares."Further, InGovern says there are disclosure and transparency issues related to material scheme related documents as the company has not disclosed publicly any of the material scheme related documents, like composite scheme of arrangement, valuation report, audit committee report etc.Also frequent restructuring within the group is also a key concern for minority shareholder interests, it says."Since 2009, the company has realigned its businesses more than seven times in addition to stake sale of non-core businesses. Although the company's efforts to de-lever its balance sheet are appreciable, such frequent business realignments are a key cause of concern for minority shareholders from a governance standpoint," InGovern said.Most of the intra group realignments are done without adequate disclosures on valuation consideration, minority shareholder impact, neither is any explanation provided on the long-term rationale and commercial benefits of such exercise, it added.Pantaloon Retail shares closed down 0.4 percent at Rs 220.10 on NSE on Tuesday. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
