The Hindu Business Line : To consolidate promoter holdings

TWO Rane group companies, Rane Engine Valves and Rane (Madras), have come out with open offers for buying shares from the public. The open offers are the first step in the process of consolidating the promoters' holdings in a to-be-formed company called Rane Holdings Ltd.

The promoters had about 32 per cent stake in the Rs 5.04-crore equity of Rane Engine Valves (REVL), as on December 31, 2003.

According to the proposed scheme, the promoters will sell 9.6 lakh shares, or 19.05 per cent stake in the company, to three other group companies - Rane (Madras), its subsidiary Rane Investments, and Rane Brake Linings.

For each share, the promoters will get two shares of Rane (Madras) for a value of Rs 146 per share and Rs 118 in cash. The cash could come from any or all of the three companies.

The three acquiring companies will then spend Rs 11.32 crore only for the promoters' shares in REVL.

Since the three companies are buying only the promoters' stake in Rane Engine Valves, there is no legal obligation for the three companies to come out with a public offer. However, "in the spirit of good corporate governance", the three companies are making a similar offer to the public.

Thus, a shareholder of REVL can sell his shares to the three other companies of the group. In return, for every share he sells, he will get two shares of Rane (Madras) and Rs 118 in cash.

So, the open offer is for buying 10 lakh shares from the public, on the same terms.

The cash outgo works out to about Rs 12 crore. The three companies will then spend in cash nearly Rs 24 crore for the 40 per cent plus stake in REVL.

Coming back to the promoters, the transaction will have the effect of increasing the promoters' stake in Rane (Madras).

This is because they will get shares in Rane (Madras) when they sell their Rane Engine Valves shares.

Because the promoters' stake in Rane (Madras) will increase, they will have to come out with an open offer for buying another 20 per cent stake in the company from the public. The offer price will be announced on Tuesday, but is likely to be around Rs 146 per share.

Thus, there are two open offers - one from Rane (Madras), Rane Investments and Rane Brake Linings for the shares of Rane Engine Valves, and the other from the promoters for the shares of Rane (Madras).

The open offers complete the first phase of the plan.

In the next phase, Rane (Madras) would be split into two companies. One will bear the name Rane Holdings Ltd, which will take over all the investments of Rane (Madras), including the group's investments in various joint venture companies.

The other company will bear the name `Rane (Madras) Ltd', which will takeover all the manufacturing and marketing activities of the existing Rane (Madras).

The ratio in which the equity capital of the existing Rane (Madras) would be split is yet to be decided.

Speaking to newspersons on Monday, the Rane group Chairman, Mr L. Lakshman, said that both Rane (Madras) and Rane Holdings Ltd would be listed on both the BSE and NSE.

The promoters currently hold 43.96 per cent in the Rs 12.20-crore equity of Rane (Madras). After the two public offers, this could go up to anywhere between 50 per cent and 55 per cent, Mr Lakshman said.

The holding pattern will not change when Rane (Madras) gets broken into two companies. Thus, the promoters will have about 50-55 per cent stake in Rane Holdings too.

Usually, Indian industrialists do not prefer their holding companies to have non-promoter shareholders or to be listed.

The promoters could raise their stake in Rane Holdings Ltd either by buying out the non-promoters' shares through a public offer or through a buy-back plan.

The promoters could then even delist the company. When asked about this, Mr Lakshman categorically denied that that was the plan.

How the scheme runs its course

*THE promoters of the Rane group will sell 9.6 lakh shares owned by them in Rane Engine Valves (REVL). The buyers are three other companies of the group - Rane (Madras) Ltd, Rane Investments Ltd and Rane Brake Linings Ltd.

*The REVL share has been valued at Rs 410. For every REVL share, the promoters will get two shares in Rane (Madras) for Rs 146 each and Rs 118 in cash.

*This transaction does not trigger a public offer; yet as in the spirit of good corporate governance, the three companies are making a similar open offer to all shareholders of REVL.

*The three companies will spend about Rs 24 crore to buy the REVL shares, both from the promoters and the public.

*After the transaction is completed, the promoters will have no direct stake in REVL, but their stake in Rane (Madras) would have increased. And because of this, they will come out with an open offer for buying another 20 per cent stake from public shareholders.

*Consequently, the promoters' stake in Rane (Madras) could go up to anywhere between 50 per cent and 55 per cent, from 43.69 per cent now.

*After this, Rane (Madras) will be split into two companies - Rane (Madras) and Rane Holdings Ltd. The new Rane (Madras) will take over all non-investment activities of the existing Rane (Madras). Rane Holdings will takeover all the investment activities of the group and will become the group's holding company.

*Thus, the promoters' stake in the group will be brought under one company, Rane Holdings Ltd. And the promoters will have over 50 per cent stake in the company. (The promoters' stake in the other companies such as Rane Brake Linings and Kar Mobiles are negligible.)

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