The stock shot up 25% on heavy volumes since early March 2010—almost three months before its deal with Abbott was announced. Will SEBI look into what appears to be a possible case of insider trading?
On 21st May, Piramal Healthcare announced that it was selling a part of its business to Abbott Laboratories, ending months of speculation about what was going on in the counter. While that made the headlines, there was something else going on in parallel as well—a suspicious case of price rise on the back of large volumes. On 26 February 2010, Piramal Healthcare was trading at Rs397.85 and by 20th May—the day before the deal was announced—it had shot up to Rs570.10 on the National Stock Exchange. This meant a jump of 43%. In contrast, the Pharma index had gone up by just 3% during the same period.
The rise in price was backed by huge volumes. The average volume in January was 1.50 lakh. This went down to 52,115 in February. However, in March, as the discussions about the deal with Abbott progressed, the price shot up on huge volumes. In March, volumes skyrocketed to 71,146 shares per day, a jump of 47% over the January and February average. In April, volumes surged even further to an average of 2.12 lakh shares per day. On 20th May after the market closed, Piramal announced that it is selling its domestic formulations business to Abbott for $3.72 billion (approximately Rs17,112 crore). In the 16 days of trading in May, average daily volumes were an unprecedented 18.32 lakh shares.
Those in the know of the deal might have laughed all the way to the bank. The volumes in other pharma counters hardly budged from their averages. The correlation between the rising price of Piramal Healthcare shares, the rising volumes and the final announcement of the deal seems apparent to anyone who wants to see it. The question, do the regulators have any interest in seeing it?
The first line of regulators are the stock exchanges. They are not known to stir themselves into insider trading investigation. We have written to the Securities and Exchange Board of India whether the price rise, accompanied by large volumes over months and culminating in a deal, warrants an investigation but we have not heard from the regulator till the time of uploading this piece.
The Piramal Group has interests in healthcare, drug discovery & research, diagnostics, glass, real estate and financial services. The company recorded a consolidated operating income of Rs3,670 crore in the year ended 31 March 2010 while it posted an operating profit of Rs740 crore. In FY10, its Healthcare Solutions (Domestic Formulations) division reported sales of Rs2,000 crore. Piramal Healthcare, controlled by Ajay Piramal, was put together through a series of acquisitions.
The new deal was possibly ordered by the political establishment and means little in real business terms, especially since it is inconceivable that Mukesh Ambani would get into finance and telecom
The press release issued on Sunday afternoon was matter-of-fact: “Reliance Industries Ltd. (RIL), led by Shri Mukesh D. Ambani, and Reliance ADA Group companies, Reliance Communications Ltd., Reliance Infrastructure Ltd., Reliance Natural Resources Ltd., and Reliance Capital Ltd., led by Shri Anil D. Ambani, have today approved and signed an Agreement canceling all existing non-compete arrangements entered into between the two groups in January 2006 pursuant to the scheme of reorganization of the Reliance Group and entered into a new simpler, Non Compete Agreement with respect to only Gas Based Power Generation.”
The reaction was of utter surprise across media, the corporate sector and market players. Does this mean that the two brothers are now bhai-bhai? Or does this mean that Anil has finally thrown in the towel in the high-stakes fight he was fighting? Analysts were quick to point how Mukesh Ambani is now free to get into telecom, a dream business for him until the fight broke out and he had to give it away to Anil. He can also get into power and then financial services. The market, of course, believes all this. Reliance was up 2.72% by the end of the day. Anil Ambani’s companies too made smart moves. Reliance Natural Resources was up 22.70% and Reliance Communications was up 10.99%.
This writer, whose first brush with a Reliance balance sheet was in 1984, 26 years ago, has a different view. Knowing Anil Ambani and Mukesh Ambani, their business motivations, personal bent and their current financial status, this truce is temporary and means very little in real business. According to a long-time Reliance watcher I spoke to, the truce was directed by political bigwigs who literally ordered them to arrive at some sort of settlement that can send a signal to the public that all is well now. “All this is drama. They have been asked to display friendship which is what they are doing.”
In which case, what does it mean, in business terms? For one, Anil Ambani can now look to sell a part of his telecom business which is what he tried to do when he struck a deal with MTN in 2008. That deal came unstuck because Mukesh Ambani scared MTN out of the deal by saying that he was holding the first right of refusal and therefore a deal with Reliance Communications would lead to a long-drawn legal fight. MTN subsequently tried to tie-up with Bharti.
Second, as part of the deal, Anil Ambani will now get some compensation for higher gas prices. This can come in the form of RNRL being taken over by Mukesh Ambani since RNRL is a shell company now.
What about the speculation regarding Mukesh Ambani’s moves? Those who know even a little bit about him (and there are so few of them) would find it hard to believe that he will enter a business as fragmented, risky and volatile as finance which offers so little potential for scalability. He has no interest in owning a mutual fund and fighting it out with 38 others. Mukesh Ambani running a stock-broking company? Nothing can be more ridiculous. The Reserve Bank of India will not give a license to an industry house and therefore he cannot set up a bank. Experts who have predicted that Mukesh Ambani will now enter finance have no clue as to how Mukesh Ambani’s mind works.
Those who know that the telecom business was dear to Mukesh Ambani (he was truly rueful when he had to give it up to Anil as part of the settlement) will assume that Mukesh Ambani will jump into telecom now that the non-compete clause is gone. Indeed, all analysts have broadcast this, today morning. Once again, it seems most unlikely to me that Mukesh Ambani would still be interested in a business whose business model is broken after five years of incredible growth. There are too many players aping each other. There is little competitive advantage today. Maybe Reliance will enter this business someday but only when several of its competitors have gone belly up.
The only possibility is Mukesh Ambani entering power which involves all the skills that Ambani is famous for: execution skills of mega-projects, massive fund-raising, managing the environment and so on.
So, if the friendship was all a drama and businesswise little has changed, will the constant behind-the-scenes sniping by the brothers at each other come to an end? Don’t bet on that either.
The trio have been voicing their criticism of TRAI's recommendations and have asked the government to dump the report, which according to them is "retrograde" and "absurd"
Three leading mobile operators have pre-empted a policy change by approaching Telecom Disputes Settlement & Appellate Tribunal (TDSAT) against telecom regulator Telecom Regulatory Authority of India’s (TRAI) recommendations on second generation (2G) spectrum, including a one-time fee for holding radio waves beyond 6.2 Mhz, reports PTI.
The operators to have approached telecom tribunal TDSAT are Bharti Airtel, Vodafone and Idea.
However, one of the operators said they cannot comment on the details of the challenge as the matter is 'sub-judice'.
The trio have been voicing their criticism of TRAI's recommendations and have asked the government to dump the report, which according to them are "retrograde" and "absurd".
The GSM operators are also critical of capping the spectrum at 8 MHz in all circles except Delhi and Mumbai where the limit is 10 MHz, as they think it would restrict future growth prospects.
These issues are crucial for incumbent mobile operators as paying higher fees for existing as well as future 2G spectrum will be a big financial burden for telcos, especially Bharti and Vodafone, as their profits have already come under pressure due to the intense tariff war.
TRAI had also come under their (GSM operators) attack for recommending refarming of spectrum as per which players holding spectrum in the 900 MHz band would be asked to return spectrum as and when their licence comes up for renewal.
These players are also opposing vacating 900 MHz spectrum because that will mean moving from a more efficient spectrum band to a less efficient one.
If the TRAI recommendations are accepted, operators like Bharti, whose licence expires in about two to three years, would have to return 2G spectrum in the 900 MHz band.
This would translate into companies incurring massive investments in shifting customers to the new frequency band and deploying networks for the new airwaves.
Shares of Bharti Airtel and Idea have dipped significantly since the TRAI recommendations on May 11.
All TRAI proposals are subject to the Department of Telecommunications (DoT) approval before being made into laws. The DoT has constituted an internal committee to look into the report.