Ruias face ire over decision to stick with ‘undervalued’ Essar Energy open offer

Vidya Ram | | Updated on: Mar 13, 2018

Minority shareholders weigh options, including moving court

The Ruia family faced anger in London’s financial centre, and a potential backlash, following their decision to stick with an existing offer to buy out minority shareholders stake in Essar Energy.

The formal offer by Essar BIDCO Holdings — of 70 pence a share and 80 pence for each convertible bond that it does not already own — was made just ahead of a Friday evening deadline and a month after the tentative proposal was first made.

Essar BIDCO Holdings is a subsidiary of Essar Global Fund Ltd, the majority shareholder (it owns 78 per cent) in the London Stock Exchange-listed Essar Energy.

The offer was last week rejected by an independent committee of Essar Energy’s board, which said the proposal clearly undervalued the company and its growth prospects.

Philip Aiken, chair of the independent committee, expressed the panel’s disappointment that Essar Global Fund had chosen to use its position as majority shareholder to “try and prevent minority shareholders from realising an appropriate value for their shareholdings”.

He called on shareholders and bondholders to not act on the offer until further announcements were made.

The offer had already drawn fire from investors, including Standard Life, which last month branded the move by the Ruias as “cynical opportunism” and a “calculated attempt” to deprive minority shareholders of a future upside in the company.

Ahead of the formal offer, Sky News reported that a number of the larger minority investors were in talks with a top city law firm to potentially challenge the move in court.

Over the weekend, one investor told The Times that business relations with the banks advising the Ruias could also be jeopardised as a result of their role, while another pledged to “seek to shame” Essar Global’s advisers and independent board members over what it said amounted to “legalised theft”.

Essar reaction Essar Capital insisted the decision had been made as a result of fears of ongoing losses for Essar Global Fund, following the sharp fall in Essar Energy’s share price since the 2010 initial public offering.

“The loss for EGFL (Essar Global Fund) has been more than $6 billion and there is a concern about further deterioration in the share price of Essar Energy and the impact on EGFL and other stakeholders…We believe the acquisition is the best solution to address the challenging future that lies ahead,” it said in a statement.

The funds raised in the initial public offering were used to increase capacity in the power and refining business but had “not been enough to offset the headwinds”, it added. “Under the circumstances we believe the business would be better managed in the private domain.”

Published on March 14, 2014
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