Vote against Shriram Transport's merger proposal: InGovern

Moneycontrol Bureau

Proxy advisory firm InGovern Research Services is advising institutional shareholders in Shriram Transport Finance to oppose the resolution seeking to merge privately-held promoter arm Shriram Holdings Madras Private Ltd. (SHMPL) with itself. InGovern's contention is that the swap ratio favors the promoter arm.
The court-convened meeting of shareholders to vote on the resolution is on June 14 at Chennai.

As on March 31, 2012, institutional investors held 41.67% in Shriram Transport Finance, a non-banking finance company that finances purchase of commercial vehicles.

SHMPL holds 9.33 crore shares or 41.26% in Shriram Transport, and Shriram Capital, the other promoter firm, holds 4.38%. Post-merger, shares held by SHMPL will be cancelled and Shriram Transport Finance will allot 9.38 crore equity shares to shareholders of SHMPL as per the swap ratio of 313:124.

"Without any stated reason, the proposed share-swap is tilted in favour of the shareholders of SHMPL. As SHMPL's sole business is its holding of STFC's equity shares, the rationale of allotting an excess of five lakh equity shares is not disclosed by the company," says the InGovern note.
At Thursday's closing price of Rs 527, the excess shares are valued at Rs 26.35 crore.
"While the amount itself may seem insignificant, it is the principle that is incorrectly applied and consequently leads to an increase in promoter holding without any basis," says InGovern managing director S. Subramanian.

Genesis Indian Investment, ICICI Prudential Life Insurance, Ontario Teachers' Pension Plan Board, Stichting Pensioenfonds ABP, Merrill Lynch Capital Markets Espana SASV, Equinox Partners LP and Fidelity Investment Trust are the key institutional investors in Shriram Transport Finance.

UPDATE to the story published at 9:37:

In its notice to stock exchanges, Shriram Transport Finance said the additional equity issuance of 5 lakh shares by way of the merger was in consideration for additional net assets of SHMPL.

"However, the additional net assets of SHMPL have not been revealed by the company in the explanatory statement of the CCM notice. If there were cash balance in SHMPL that should be ideally distributed to all shareholders of SHMPL and a clean stock swap should have been effected," says InGovern's Subramanian.