AstraZeneca Pharma today said that its board would be meeting on Wednesday to consider a proposal to delist the company.
Just as the dust was beginning to settle on the Fresenius Kabi delisting controversy, another MNC's action has reignited the debate on whether the delisting guidelines are being gamed by promoters looking for a cheap exit.
For the record, no rules have been broken. But the question that minority shareholders and market experts are asking is: Are the companies adhering to the law in spirit or merely in letter?
AstraZeneca Pharma today said that its board would be meeting on Wednesday to consider a proposal to delist the company. The foreign parent holds 75 percent in the company, having reduced stake from 90 percent in May last year through an offer for sale (OFS) to institutional investors at Rs 620 per share. AstraZeneca had taken the OFS route to comply with the Sebi rule mandating listed companies to maintain minimum 25 percent public shareholding.
To delist, the foreign parent now needs to buy an additional 15 percent from investors. Under current rules, promoters with less than 90 percent stake looking to delist, have to make an offer for minimum 50 percent of the outstanding equity and take their stake to 90 percent. For promoters holding 90 percent and above, the offer has to be for a minimum of 50 percent of the outstanding equity.
(Also Read: Astrazeneca delisting not illegal but immoral, says Tulsian)
AstraZeneca Pharma baiters claim it will be not be difficult for the parent to acquire the additional 15 percent, since all it has to do is buy back the shares from the fund managers who had participated in the OFS. Naysayers claim the OFS may have been a warehousing transaction, in which the company would have parked the shares with the investors with a promise to buy them back at a hefty premium within a year.
The company’s decision to first go in for an OFS and then change its mind in favour of a delisting is what has minority shareholders worked up.
In October 2012, Fresenius Kabi’s promoter had reduced stake from 90 percent to 81 percent through an OFS at Rs 80 per share to 4 institutional investors. But a few months later, the company came out with a delisting offer at Rs 130 per share. Under the delisting guidelines, it had to acquire 9.5 percent, which it did manage to, without much difficulty.
Minority shareholders cried foul, accusing the company of parking the shares with the fund managers and then buying so as to comfortably meet the delisting guidelines. Had the promoter holding been at 90 percent, it would have needed to buy a 5 percent stake from the public which would have been far more difficult.
Sebi intervened in the matter and directed Fresenius Kabi to make an offer to increase promoter stake up to 95 percent, instead of 90.5 percent, considering the threshold limit prior to making the OFS. The company appealed to SAT against the ruling, and won.
In the case of AstraZeneca, what is causing greater heartburn to investors is that the company’s operating performance has been looking up over the past few quarters after a prolonged downtrend.
In February 2012, the company on its own decided to recall sterile products made at its Banglore plant “as a measure of extra and abundant caution although there is no issue of patient safety”. The company’s revenues for financial year 2012-13 fell sharply and so did the stock price, tumbling from around Rs 2000 to a low of Rs 595 by March 2013.
For the nine-months ended December 31, 2013, the company clocked revenues of Rs 360 crore, compared to Rs 295 crore during the same period the previous year. Minority shareholders cannot be faulted for thinking that they are being thrown over just when the company’s prospects are improving.
Last, but not least, AstraZeneca shares jumped 12 percent in two trading sessions last week, just before the news about the March 5 board meeting to discuss the delisting proposal was made public.
What do you think? Should Sebi amend delisting guidelines or intervene only in cases where it feels investors may have been shortchanged?