Stocks
Companies selling out businesses reluctant to share gains with minority shareholders

Piramal Healthcare, Kanoria Chemicals and Laffans Petrochemicals are some of the companies that have earned huge amounts of cash recently by selling their businesses; but minority shareholders have got little out of this

Recently, promoters of quite a few companies have sold off parts of their business, saying that the sale proceeds are to be used for expansion and growth. But how much of this amount is actually being used for expanding business? Or, are they depriving shareholders of their legitimate dues? We looked at five companies that have taken this step over the past year.

Piramal Healthcare, India's second largest pharmaceutical company, made headlines when it announced on 20 May 2010 that it had signed a deal to sell its stake in its domestic formulation business (the Healthcare Solutions division) to Abbott Healthcare, the global, broad-based health care company.

The deal included an upfront payment of $2.12 billion, plus $400 million annually over the next four years, amounting to a total Rs17,000 crore. In reaction to the announcement, the share price of Piramal Healthcare fell by 11.81%, from Rs569.65 to Rs502.35, whereas the price of Abbott India surged by nearly 9%.

In the first week of May 2011, Piramal Healthcare said it plans to enter the financial services sector, by setting up two non-banking financial companies (NBFCs). The business will fund real estate and infrastructure projects. It is seems odd that a company engaged in the manufacture of pharmaceuticals would be interested to enter the financial services business. To add to this, the company says it plans to invest around Rs24,000 crore by leveraging its equities.



Having two completely unrelated businesses raises the risk profile of a company and this has not gone down well with investors. Therefore, in spite of announcing a 300% dividend payout amounting to Rs12 per share, the Piramal Healthcare stock price fell once again, from Rs458.80 to Rs417.55, a drop of nearly 9%. Investors who have put their money in Piramal Healthcare during the past year will be disappointed with the company's management, as the stock price has fallen about 30% over the past 12 months and the dividend payout has not been interesting either.

It's a similar story with Maharaja Shree Umaid Mills, a composite textile company that makes cotton yarn, cotton fabrics and synthetic yarn. On 21 August 2010, the company informed the Bombay Stock Exchange (BSE) about the sale of a 22,000 square yards property in downtown Jaipur, which housed the registered office. The property which was said to be valued at Rs200 crore, was sold for Rs158 crore, as per the agreement. The stock hit a 52-week high of Rs243, gaining about 19% in two days.

Towards the end of March 2011, the company made another announcement that it was selling its 21.65% stake in Andhra Pradesh Paper Mills to IP Holding Asia Singapore PTE, a subsidiary of International Paper Company, USA. The deal is to be completed by 14 June 2011. This time the company's stock price shot up by 43.96% in the two days following the announcement. On 26 May, Maharaja Shree announced a dividend payout of just Rs5 per share, amounting to a mere Rs4.32 crore. The dividend is identical to that in the previous year.



When we asked the company how it planned to use the funds from the sale, Govind Sharda, executive director, said, "The investment plans of the company to utilise the funds generated/likely to be generated would be announced in due course, keeping in mind the potential of growth for stakeholders."

"In the interim, the company has begun its process for implementation of its expansion plans for value addition in the existing line of textile business, where it could invest in excess of Rs1 billion over the next two years. The commercial closure of the process is underway and once accomplished, the same would be suitably communicated to the stakeholders," Mr Sharda said.

The other companies that have taken a similar course are Laffans Petrochemicals, Kanoria Chemicals and JB Chemicals and Pharmaceuticals.



Laffans Petrochemicals is a leading manufacturer and exporter of chemicals, textiles and dyeing finishing chemicals. On 3 April 2011, Laffans said it was selling its chemicals division at Ankleshwar, in Gujarat, to Huntsman Corporation, the global manufacturer and marketer of differentiated chemicals. Despite both the companies being listed on reputable stock exchanges, the price of the deal has not been made public. The Laffans stock price jumped by 19.8% after the announcement. However, the company which has made profits has no history of paying dividends.



On 17 April 2011, Kanoria Chemicals and Industries (KCI), the chemical intermediates manufacturer, announced the sale of its chloro-chemicals unit to the Aditya Birla Group for Rs830 crore. The Kanoria stock price shot up by 20%. The company said funds from the sale would be used for growth of its core businesses. When asked for details of the plans, NK Nokhla, CFO, said, "Considering that the deal was concluded quickly, KCI is yet to firm up detail plans for utilisation of the sale proceeds." At a meeting on 28 May, the company board decided on a 100% dividend payout.



A few days back, JB Chemicals and Pharmaceuticals also announced the sale of its over-the-counter business in Russia for Rs938.51 crore. The proceeds from the sale, it said, will be used for expanding the business. Investors were understandably unhappy as this was a major revenue generating arm, and the share price fell by 13.06% following the announcement.

It seems that some companies can be really tight-fisted when it comes to sharing capital gains with shareholders. Usually, they will claim-legitimately-that they plan to use the cash for growth. And while institutional investors rarely pressure companies to pay dividends, minority shareholders who hope for higher dividends hardly have a say in these matters. Clearly, investors must take into consideration the attitude of company managements in such matters, before putting their money into such companies.

User

COMMENTS

Govind Sharda

5 years ago

Maharaja's dividend payout has doubled in the current year.
Not sure, how the author can estimate value of land sold for Rs 200 cr when it couldn't be sold for more than 158 cr. It is speculation to assess any value and not in good taste.
By restricting div payout to a 50%, the promoters have conveyed the need to plough back funds for the future growth despite their controlling almost 75%. This is contrary to general belief where promoters are perceived to be looting the Corp resources. Pl note, promoters have reduced their holding by almost 9% after disposal of Jaipur land. If the intentions were negative, the dilution could have been avoided.
I wish, the author could research the material before perceiving himself the authority to comment on a professionally managed company like Maharaja. Knowing this company well, I seriously doubt intentions of the author for other companies as well.

P K Biswas

6 years ago

The scenario is far worse with unlisted private companies.

Abha Vijayavargiya

6 years ago

Very informative. i appreciate yr non biased comments.

Sudip Sheth

6 years ago

There are so many companies Doi not reward shareholders. most of them do not bring money to the company itself, promoter sell their stake directly to new promoter (like ranbaxy).
Piramal Health were better promoter who brought money to the comany, offered buyback.

Other recent property gainer are Borosil Glass.

Earlier Atlas Cycle, Victoria Mills etc. who has given back Nil to share holders as gain or Share market price.

nagesh kini

6 years ago

May & Baker to Piramal Healthcare had a French co. in between for M&A. Suggest you check with the Co.
Secretary.

NANU NATVERLAL MEHTA

6 years ago

What do you expect out of this so called professionally CHOR companies?This is the same story of Corporate world who have brought our Nation to such a spectacle.Whom to Blame when Government itself is run by Mafias with full cooperation from unscrupulas Corporate Thieves.Many More Tihar Jails have to be built to accomodate this Shameless people.

nagesh kini

6 years ago

I've been a shareholder of May & Baker a onetime British pharma major ever since it went public under FERA dilution more out of sentimental reasons - my father was with the co. for over 35 years. It went on to change of name to Rhone Polonc. I continue to hold the shares even as a minority shareholder.No regrets so far.

REPLY

kedar

In Reply to nagesh kini 6 years ago

kini sir what is present status of May & Bake
my uncle also holding them

MRBorkar

6 years ago

Then Abbott has got Solvey pharma merged in it. It will be worth to find out whether Piramal Health invested money in Solvey or Abbott? At Solvey's last AGM monority shareholders
did complain about the swap ratio n dividend.

Jagadees

6 years ago

I think the author missed few things in piramal healthcare deal.. They got 10,000 crores this year and paid tax of 3700 cr, retired debt of 600 cr....out of the remaining money they done 25% share buyback for 2500 crores i.e. they spent about 45% of the proceeds to reward the shareholders.... You just mentioned that there is only a dividend of 12rs for the shareholders.... and i dont know how anyone can judge the management based on the performance of share price in the past 1 year.....expecting little of in-depth analysis rather than surface-scratching from ML :(

REPLY

pinakin

In Reply to Jagadees 6 years ago

Jagadees/Sudip: If the buy-back & dividend by Piramal healthcare were so investor-friendly (as u seem to suggest), then, why did the scrip price languish post the jumbo deal? For the investors, scrip price is what really matters...not management talk/image.

Sudip Sheth

In Reply to Jagadees 6 years ago

I agree with You

SANarayan

6 years ago

Legitimately the sale proceeds of any Co asset belongs to all shareholders in proportion to their shareholding. Therefore my suggestion is maybe amend Companies Act to say that whenever an asset of the Co is sold above a certain threshold level, the net sale proceeds per share to be worked out and any proposal of the Mgt to utilise such proceeds for business expansion or diversification should be voted upon by every shareholder by postal ballot either for the resolution or for encashment of his share of the sale proceeds. Only the amt voted for by shareholders for spending as per mgt proposal should be used for such activities.Such shareholders who vote for the proposal should then get coupons, which will entitile them to an additional add-on dividend over and above the normal dividend for the next 3 years only. Hopefully this will protect the small shareholder and may encourage Mt to come up with workable and viable business plans for the sale proceeds. If Moneylife gets a consensus on this it could moot a paper to the Corporate Affairs Ministry.

REPLY

Deepak Shenoy

In Reply to SANarayan 6 years ago

But most of these managements own more than 50% shareholding, so they will be able to say yes for anything. Add-on dividend coupons aren't really legal; but they could issue preference shares at 7% guaranteed dividend for free to all investors.

citizenindia

In Reply to Deepak Shenoy 6 years ago

our managments will still find a way around it. undervaluibf deals and complicated structuring , they can do almost anything. kyunki unke liye company is personal property. they need to be reminded that its a limited co! an ageing promoter of a large group will show you what indian promoters really think of their shareholders. he plans to divide all his property between his family members and such is the clamour for his wealth that eventually the interest of the companies will be undermined . companies will be run by people without merit.

Osian’s Art Fund is running late on payments

The once popular art fund has failed to live up to its promise to repay investors. Chief advisor Neville Tuli assures again that payments will be made despite the delay

Osian's creditors may have to wait, says Neville Tuli, chief advisor of Osian's Art Fund. His response was in answer to an investor's queries about the delay in funds being transferred to investors' bank accounts. Mr Tuli has also indicated that the date for 'total redemption' that was initially set as end-June, will be deferred.

"We are trying our best to adhere to the deadline and will be able to give you a more precise update by Friday, 24 June 2011, but a delay of about seven to ten days will probably occur in some cases," Mr Tuli said. Most payments will be in the form of demand drafts.

When Moneylife approached Mr Tuli with the case of an analyst whose mother had invested Rs10 lakh in Osian's Art Fund, he promised that the first instalment would be disbursed on 4th June, but it did not happen. "We have checked with our bank and no transfer has come through from Osian's. NEFT transfers usually come through the same day. Could you let us know when we can expect the first instalment?" the investor had asked Osian's chief advisor.

Mr Tuli's response was: "All NEFT (national electronic funds transfer) transfers started on Monday, 6th June, and will close by Thursday, 9th June 2011. The investor's NEFT was completed this morning (Tuesday)," Mr Tuli said.

Earlier, Osian's chief advisor had said that all unit-holders would be paid in three instalments in June which would account for 85% of their capital. For those who were expecting payments via NEFT, and whose account/branch details differed from that in Osian's records, there would be a delay of four to five days. Updates about the status of the total redemption target would be available on 24th June.
However, Mr Tuli's assurances have failed to convince other investors who are yet to receive their payments and they are now planning to organise themselves into a group and take stringent action.

"Can the investors say if they have received their investment + return (as indicated at closure) between 17th May and 29th May as was last promised by Mr Tuli? If not, a few investors have suggested a sit-in protest outside Osian's office, to get the attention of the local press and the police," an investor said.
The proposal is supported by Rajiv Jain, whose company had supplied Osian's with paintings for auctions, but it has not received payments even after the paintings were sold. "The auditors of Osian's have sent us a letter acknowledging that they owe us this money. It will be a great help if our company can join a common platform so that we can retrieve our hard-earned money," Mr Jain said.

The tide of anger is unlikely to subside if Mr Tuli delays the return of funds any further.

User

COMMENTS

Prakash

6 years ago

I would like to join the group of investors waiting for their money to be refunded , with returns.

YouTube launches YouTube Box Office in India

YouTube will feature a premium block buster movie every month absolutely free of cost

All netizens in India have more reasons to rejoice as YouTube is introducing a new destination for all the movie buffs titled 'YouTube Box Office'. This exclusive channel will feature a premium block buster movie every month absolutely free of cost. Kick-starting the initiative will be the latest hit 'Band Baaja Baaraat', starring Ranveer Singh and Anushka Sharma.

The YouTube Box Office channel will also feature other popular movies which users can watch for free from the YouTube catalogue of movies which includes over 1,500 titles including regional language films. The channel will be available to all users in India and will be IP blocked for users in other countries. Intel will be the exclusive presenting sponsor for the channel in India.

Sandeep Aurora, Director-Marketing, Intel South Asia said, "The YouTube Box Office channel provides the consumers an opportunity to view premium, high quality movies on their PCs. Consumers can also enjoy these movies on their big screen HDTV with Intel® Wireless Display (WiDi) feature on the 2nd Generation Intel Core Processor based PCs and bring YouTube to life in HD format on their TVs."

YouTube will collaborate with its partners in India on a revenue share basis to bring more of such premium content on YouTube Box Office every month.

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