Investors relieved: HC appoints E&Y to value Cadbury shares

The Bombay High Court has asked E&Y to independently value the shares of Cadbury India and submit a report within six weeks

In a relief to over 8,000 investors, the Bombay High Court has appointed Ernst & Young (E&Y) as independent valuers to evaluate shares of Cadbury India whose promoters have proposed to acquire 2.5% minority shareholding, reports PTI.

Hearing an intervention application filed by Investors Grievances Forum (IGF), a body for protection of small investors, Justice SJ Kathawala on 15th April asked E&Y to independently value the shares of Cadbury India and submit a report in a sealed cover within six weeks.

Cadbury shareholders opposed valuation of shares based on the report prepared by independent valuers Bansi Mehta and Co & SSPA and Co, which arrived at Rs1,340 per share, IGF counsels Chandu Mehta and Darshan Mehta told PTI.

According to IGF, the company has proposed a share capital reduction scheme whereby 97.4% majority promoter shareholders plan to acquire 2.5% minority shareholding at a price fixed by the valuers.

Cadbury's counsel, Janak Dwarkadas, said that the exercise of valuation of Cadbury shares by Bansi Mehta and Co & SSPA and Co was in conformity with the law laid down by the apex court, pertaining to value of shares, in many judgements.

However, the company is agreeable to get the valuation done by an independent valuer appointed by the Court, Cadbury’s counsel said. But this valuation should be treated as final and binding on all the objectors and shareholders of Cadbury who would not be allowed to pursue their objections later, he said.

Cadbury's counsel Mr Dwarkadas submitted that an assurance from the Court to make the valuer's report binding on shareholders was necessary to avoid the matter from getting delayed and also not to cause any prejudice to the company.

The objectors agreed to the suggestion of Cadbury's counsel with a caveat that they would be free to interfere with the report in the event that they find any grave infirmity in the valuation report obtained from the independent valuer.

Appointing E&Y as independent valuers, the judge ordered that fresh valuation will be as on the appointed date and shall be based on the unaudited balance sheet as on 31 July 2009, on the same material as provided to earlier valuers.

Accordingly, the company-appointed valuers were asked to hand over the material relied upon them in a sealed cover to the court appointed valuer.

The objectors have been allowed to file their objections to the court appointed valuer by 29th April which shall be considered by the latter.

The Court further ruled that the valuation by E&Y shall be final and binding on all the objectors and shareholders, subject to the caveat.

According to IGF, Cadbury has 8,088 shareholders in and outside India. Of them, 800 are minority non-promoter shareholders. At an extraordinary general body meeting (EGBM) of the Company, only 79 out of over 8,000 shareholders were present.

Considering that resolutions to be passed at the EGBM would result in total loss of ownership of shares by the minority shareholders, the company ought to have invited votes by postal ballot instead of expecting all shareholders to remain present and vote on such a crucial issue, IGF argued.

This compulsory acquisition of shares without even being heard is completely in violation of the constitutional right of minority shareholders conferred to them under Article 300 (A) of the Constitution, IGF contended.

IGF argued that the reason given by Cadbury to reduce share capital was that the global policy of the parent company has always been to operate in all the jurisdictions across the world through a wholly-owned subsidiary or as a branch.

IGF contended that in February 2010, Cadbury investors had accepted the bid of Kraft Foods to take over the company and hence Cadbury has ceased to exist and the decision whether to operate as a wholly-owned subsidiary in all jurisdictions or to issue fresh shares and get relisted in all jurisdictions will now be decided by Kraft Foods and not Cadbury.

IGF argued that the proposed share reduction will result in substantial increase in value of shares of the Company which will be more than Rs1,340 per share, now sought to be foisted upon small shareholders. By reducing capital only promoters would benefit at the cost of small shareholders, it argued.




7 years ago

why cadbury agreed for another valuer when valuation done by company appointed valuer was in conformity of law?waht about the valuation done by valuer appointed by other minority shareholders?

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All eyes on RBI: Balancing inflation and growth

Inflation concerns are likely to weigh upon the central bank as it hikes key rates in its monetary review. The extent of the hike will indicate the government’s stance on recovery.

That a rate hike is imminent is quite a no-brainer. However, the Reserve Bank of India (RBI) may have to weigh its options carefully before effecting the rate hike through tomorrow’s quarterly monetary policy review.

The over-bearing concern is likely to be the burgeoning inflation eating into the pockets of consumers. The wholesale price index-based inflation is hovering around the 10% mark, while food inflation is again inching upwards, nearing 18%. This coupled with the commodity and fuel price rises are beginning to add to the inflationary pressures.

An analyst from Anand Rathi confirmed that RBI is likely to raise the rates on account of near double-digit inflation. “We anticipate up to 50 basis points increase in the repo and reverse-repo rates. Although the consensus is that RBI will raise CRR also, we don’t expect that to happen as yet. If the CRR is hiked, it would benefit banks with a higher low-cost deposit rate. But we feel that RBI will not make any significant move in this area.”

Sachchidanand Shukla, chief economist, Enam Securities, believes that RBI will raise repo and reverse–repo rates by 25 bps each in view of the rising inflation.
Until now, the other key concern of the central bank was whether the economic recovery has taken firm root—and whether a rate hike would impede the recovery process. Signs of recovery are getting more and more visible.

The index of industrial production (IIP), a key indicator of growth, has witnessed double-digit growth for the past three months. The government is also confident of achieving GDP growth of 8.5% in the current financial year. Also, with credit off-take rising past 16%, companies too seem to be optimistic about growth prospects and are accessing credit for their expansion plans.   

But there are still some voices cautioning that the recovery has not yet fully set in. They argue that is too early to take the recovery for granted and that a sharp hike in interest rates at this juncture would dampen the speed of recovery. With companies only just beginning to return to the projects table, high interest rates may make such projects unviable for those companies.

Our source from Anand Rathi confirmed, “Our belief is that while economic recovery will continue, it will not be sufficiently strong. From that perspective, we do not expect more than a 50bps hike for the entire year. The growth is not strong enough for tightening of rates beyond this level.”

Sachchidanand Shukla believes that the economic recovery is sufficiently strong. “Economic recovery in India is strong enough to sustain a hike in policy rates. But if one looks at the global scenario, it is still not well-established.”

As such, the RBI will face the dilemma as to what extent the policy rates should be tinkered with. For every argument favouring a sharp hike, there is another demanding a more moderate stance from the central bank.

The RBI’s decision in this regard will be a clear demonstration of the government’s optimism, or lack thereof, about the on-going recovery process.


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