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Like many merger proposals put through recently, Escorts group amalgamation plan through the Court route has evoked contradictory views.
Escorts Ltd's proposal for amalgamation of three group companies with itself appears to have put off a section of the minority shareholders. But another group likes to view this as an attempt by the promoters to protect their interest without hurting non-promoter shareholders.
Complicated structure
According to Mr Shriram Subramanian, MD of the proxy service firm InGovern, a complicated cross ownership structure has been proposed to ensure promoters maintain their control. Escorts board on February 14, proposed a composite scheme of arrangement for amalgamation of Escorts Construction Equipment Ltd (ECEL), a wholly owned subsidiary, Escorts Finance and Investments Pvt Ltd (EFILL) and Escotrac Finance Investments and Leasing Pvt Ltd into Escorts.
All assets and liabilities of ECEL, EFILL and Escotrac are proposed to come under Escorts from October 1, 2011, the appointed date for the scheme.
The share exchange ratio proposed for the merger is 4:39 for EFILL (four shares of Escorts for every 39 of EFILL), 4:27 for Escotrac and 4:27 also for ECEL. The ratio has been based on a valuation report by chartered accountants SSPA & Co.
InGovern found the proposal not favourable for the small investors and recommended voting against the resolution at the court convened meeting on May 20.
“It is only through a convoluted structure and cross-holdings and unclear valuation, the promoter holding is sought to be increased from 27.67 per cent to 37.68 per cent due to the above amalgamation of a wholly owned subsidiary and the two joint ventures (which are actually subsidiaries),” Mr Subramanian said.
Creation of treasury shares through trusts leads to lack of transparency and dilution of minority interest, he added.
The transaction leads to a 13.84 per cent dilution for existing non-promoter shareholders, InGovern estimated.
In April, the promoters bought 4.2 million shares or four per cent stake held by Reliance Asset Management Company in the company for Rs 3.20 crore through open market purchases.
Mr Kishor Ostowal, CMD of CNI Research, however, has different take on the subject.
“This is a classical example of how a promoter group has undertaken indirect route to increase its stake.”
Had the creeping acquisition norms been liberal in tune with the current open offer regulations, Escorts promoters could have hiked their stake without resorting to a round about way, he felt.
>jayanta_mallick@thehindu.co.in
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