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Wipro Ltd has decided to hive off three of its non-IT businesses into a separate unlisted entity. This will allow it to focus more on its core IT operations.
The new company will be named Wipro Enterprises and comprise the consumer care and lighting, infrastructure, engineering and medical diagnostic product and services businesses.
The demerger is expected to help the promoters of Wipro Ltd, the country’s third largest IT services company, to conform to the recently introduced stock listing norms, which mandate that all listed entities bring down promoters’ stake to less than 75 per cent by next fiscal. As of September 30, the promoters hold 78.3 per cent stake in Wipro Ltd.
Wipro’s chief financial officer, Suresh Senapaty, told newspersons that the new development is expected to improve margins for its IT business.
An analyst with Tata Securities said the demerger was a positive development for the company as the non-IT business had lower return ratios. He said, till now the cash generated by the IT business was being used up to acquire assets in the consumer care or engineering areas. “The demerger would not only simplify the company structure, but we believe would also help the board to focus on two businesses separately,” the analyst said.
As per the restructuring scheme, the non-IT business has been valued at about Rs 11,000 crore. In fiscal 2011-12, the IT business contributed to 86 per cent of revenue and 93 per cent of operating profit of Wipro Ltd. The company said there were no plans to list the new company, Wipro Enterprises, “at any point of time.”
Shareholders’ options
Senapaty said if the minority shareholders opt to keep their shares in Wipro Enterprises, they will do so in an unlisted entity. “This factor must be kept in mind by the minority shareholders when they exercise their option,” he said.
The news of the demerger had a positive impact on the Wipro stock, which closed at Rs 361.40, up 3 per cent.
Senapaty said once the demerger takes place and if all the shareholders decide to opt for Wipro Ltd, the promoters’ shareholding in that company will fall by 2.7 per cent.
As per the restructuring scheme, public shareholders can opt for one equity share with a face value of Rs 10 in Wipro Enterprises Limited for every five equity shares with face value of Rs 2 each in Wipro Ltd. They could also choose to receive one 7 per cent redeemable preference share in Wipro Enterprises, with face value of Rs 50 for every five equity shares of Wipro Ltd that they hold.
Another option for them is to exchange the equity shares of Wipro Enterprises and receive equity shares of Wipro Ltd held by the Promoter. The exchange ratio will be 1 equity share in Wipro Ltd for every 1.65 equity shares in Wipro Enterprises. Each redeemable preference share shall have a maturity of 12 months and shall be redeemed at a value of Rs 235.20.
The demerger kicks off with effect from April 1, 2012, and is expected to be completed by the next fiscal year.
The independent director for the special committee to oversee the demerger, N. Vaghul said the decision to hive off non-IT business was taken because it had reached critical mass.
The non-IT business of Wipro Ltd currently has a debt of Rs 200 crore. Each of the businesses in Wipro Enterprises will retain their existing CEOs.
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