Disclose M&A value in investor interest: Experts

Non-disclosure of financial details in M&As has come under criticism by market experts who are now demanding rules for mandatory disclosures of deal value and other terms.

The issue cropped up after Reliance group on Friday announced the buyout of Bharti group's majority stake in Bharti AXA Life Insurance and Bharti AXA General Insurance. However, the companies did not disclose the deal value, though it involved acquisition of 74 per cent in each of the Bharti ventures.

The companies said the deal value will be announced later.

In most mergers and acquisitions, the deal values are generally made public by the companies concerned. Sometimes, the companies tend to keep the deal value a secret.

Market experts have criticised the non-disclosure of valuation and other financial terms of the deal, saying that it was against investor interest.

“Making public the deal value is very important. Reliance and Bharti are the top companies of the country. So they should have set the benchmark to make the transaction open,” SMC Global Securities' Strategist and Research Head Mr Jagannadham Thunuguntla said.

Investor brunt

Recalling an earlier deal, he said that Hero Honda (in connection with the exit of the Japanese partner Honda from the venture) had also not made public the deal value and had to bear the investor brunt in the market.

Echoing similar sentiments, Geojit BNP Paribas Financial Services Assistant Mr V.P. Gaurang Shah said: “Shareholders have every right to know about the deal. Not disclosing the deal amount may be in the larger interest of the company, but shareholders should not be kept in the dark.”

There should be some ordinance in this regard, he said.

Experts also said that non-disclosure of the deal value leads to unnecessary speculation about the size and other details of the transactions.

Ashika Stock Broking Research Head Mr Paras Bothra said, “Most of the time, it is on mutual understanding that companies do not disclose the amount. (Details of) Any listed company acquiring any listed or unlisted entity should be disclosed properly and thoroughly. Shareholders always want to know what are the implications of the acquisition. “From a shareholder point of view, everything and anything under the sun or any kind of M&A activity that is being done should be disclosed.”

Mr Bothra said such disclosures should be made mandatory.

However, some people argue that non-disclosure of certain details might be strategic in nature for some deals.

Unicon Financial CEO Mr Gajendra Nagpal said that some decisions are strategic and deal values are sometimes disclosed later.

“At times, in sensitive situations or when the companies are close to closing the deal, they do this (hide the details). But they disclose the amount at a later stage,” he said.

Mr Nagpal said that the company has the right to decide as to when they want to disclose the amount. “Nobody is denying shareholders their right, as they will come to know about the details at a subsequent stage.

“If you disclose before the deal is actually signed or consummated, it does not make much sense. It should be best left to the judgement of the management.”

COMMENT NOW