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Harshad's ACC shares may cause ripples — Buyback will trigger Takeover Code for Gujarat Ambuja

Dinesh Narayanan
Virendra Verma

MUMBAI, May 25

A BLOCK of shares, formerly owned by the deceased stockbroker Harshad Mehta and representing nearly 12 per cent equity capital of Associated Cement Companies (ACC), is likely to create unprecedented situations when put up for sale soon.

The sale has the potential to cause a few ripples in the cement sector and cause some anxiety to the Gujarat Ambuja group, the single largest shareholder in the cement major.

The Office of the Custodian, which now owns the block of shares, is planning to put it up for sale as soon as the Special Court allows it, sources said.

The Gujarat Ambuja group owns a shade under 15 per cent - a threshold that triggers SEBI's takeover code for an open offer — of ACC's equity capital.

The group could be caught in a dilemma if ACC buys back the shares (similar to the recent case of Apollo Tyres), as the group's holding in the company would then breach the threshold of 15 per cent due to the reduction in the capital base. Never before has a situation arisen where a buyback has triggered the Takeover Code.

The Securities and Exchange Board of India's Regulations governing takeovers and buyback of shares are silent on this issue.

Earlier this month, following a court ruling Apollo Tyres bought back the shares from the Custodian and reduced the equity capital.

However, the situation then was different as the promoters' holding was already above the 15 per cent limit.

Another scenario is that the Ambujas may buy those shares and make an open offer to acquire 20 per cent more from the public.

The history of sale of shares by the Custodian shows that most of the companies' shares were sold at a discount to the market price.

If the trend holds true for ACC too, then the Ambujas may be able to acquire the shares at below the current market price and make an open offer at that rate.

The company's and the Ambuja group's predicament also opens an opportunity for a third party interested in acquiring a significant holding in the premier cement maker, especially because the company does not have a specific promoter.

The issue assumes added significance because the Securities and Exchange Board of India recently decided that when the Ambuja group bought its 14.7 per cent stake in ACC from the Tatas, it did not acquire management control of the company and, hence, did not violate the takeover code when it did not make an open offer to other shareholders.

While the Special Court has said that sale of securities by the Custodian should not destabilise any company, it has also made it clear that all relevant laws and regulations, including the SEBI Takeover Code, would be applicable to the transactions.

Sources at the Office of the Custodian said that it is not concerned with the implications of the sale of securities.

"Our job is to merely liquidate and maximise the value realised from the properties of the notified parties (Harshad Mehta and others)," a source said.

A fourth possibility is that the shares could be sold in small lots or in the open market as per a Supreme Court directive.

The Supreme Court had, while specifying the methods of sale, said that if the shares could not be sold as a controlling block, then they could go in smaller lots. If that too is not possible, they could be sold in the open market.

To resolve the issue of its block of shares, ACC had filed a suit in 1998 in the Special Court set up for the trial of offences related to what is popularly known as the `92 securities scam.

The court is expected to next hear the case as soon as it re-opens early June after the vacation.

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