SEBI’s guidance to Cipla. Why does the Cipla family want to vote as one?

Drugmaker Cipla is not new to questions on succession plans and the role of the promoter family’s gen-next in the company.

Nor is it a stranger to queries on plans to sell equity or merge with a large counterpart, given the challenging environment in the pharmaceutical industry.

So when Cipla Chairman YK Hamied seeks informal guidance from the market regulator SEBI on a proposed agreement between members of the promoter-family to be able to vote as a single unit – it ends up raising more questions on rationale and timing.

Late last year, Hamied had sought SEBI guidance on whether the promoter group acting as a single unit to vote would mean a change in control in favour of Y K Hamied and trigger an open offer.

In its response that was made public on Tuesday, the regulator gave the acquisition of voting rights a clean chit provided it fulfilled certain conditions under the Takeover Regulations.

SEBI further clarified that a change in the family member under whose direction the voting would be done in case of an untoward incident involving the Cipla patriarch would also be exempt, again subject to certain conditions under the law.

Cipla promoters hold about 37 per cent in the company, with YK Hamied about 15.5 per cent in the estimated Rs 10,000 crore company.

And the proposed family agreement indicates that Kamil Hamied would represent his father MK Hamied and uncle YK Hamied, in their absence.

Consolidating hold

Sudhir Bassi, Executive Director with legal firm Khaitan & Co explains that family-owned companies undertake such actions to manage the company better. But such moves also come into use at a later date, if a take-over like situation arises, he points out.

Echoing similar thoughts, Tejesh Chitlangi, Partner with IC Legal says that the guidance clarifies that the “promoter family's succession planning exercise involving internal voting arrangements etc under a family arrangement may not trigger open offer requirement, wherein the family members are showcased in exchange filings as a single promoter group and/or are acting in concert for a specified term.”

In fact, “the same can also be a means to counter any hostile takeover bid in future,” he says.

Takeover shadow

Takeovers are a real and imminent possibility in the pharmaceutical industry, with large drug-makers still on the prowl for good companies to snap-up. Acquisitions are an effective modus operandi to get a good product or portfolio into its fold to stay competitive. Especially since, the pipeline to get new drugs into the market faces a squeeze.

At present, the global pharmaceutical industry is witnessing a takeover tangle with a twist. Multinational generic drug-major Mylan is facing a $ 40 billion takeover bid from Israeli drug major Teva. And this comes even as Mylan makes a $ 31 billion bid for Perrigo.

Cipla though is not letting in on the “why now”. A company spokesperson merely said that the “voting agreement in question has not been executed till date and the matter will be taken up in due course by the promoters.”

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