AstraZeneca is on course to achieve its decade-long plan to delist its shares from the Indian bourses by hook or by crook
AstraZeneca India is a 90% subsidiary of AstraZeneca Pharmaceuticals AB Sweden, one of the largest pharmaceutical companies in the world. Astra AB has a decade-long itch of trying to delist its Indian subsidiary. In December 2001, the parent held 56.51% shares in it.
Through two voluntary offers in 2002 and open market purchases, it increased its holding to 91.61% by March 2003. In July 2004, it came out with a delisting offer at a floor price of Rs825. The exit price discovered was Rs3,000 (for paid up shares of Rs10 each then) which was rejected by the parent. Then to meet SEBI (Securities and Exchange Board of India) guidelines, it had to bring down the shareholding to 90% in March 2005.
SEBI then came out with fresh guidelines which made it mandatory for companies to have a minimum public shareholding of 25% by June 2013 or else they will have to delist. Keeping this in mind, Astra again came out with a delisting proposal in July 2010 with a floor price of Rs576.10 and set a maximum acceptable price of Rs1,152 (paid up shares of Rs2 each now). As per sec 8(1)(b) of SEBI’s delisting regulations, 2009, the company had to obtain prior approval of the shareholders by a special resolution through a postal ballot and that the results of the postal ballot would have to indicate that the votes cast by public shareholders in favour of the resolution should amount to at least two times the number of votes cast against it. Astra lost the postal ballot and the delisting offer had to be dropped.
Meanwhile, the company had launched big long-term plans for the Indian subsidiary and proposed to introduce a large number of its globally successful drugs in the Indian market. In fact, the company had almost doubled the strength of its staff and the employee expenses had also doubled. In the 12 months ended December 2009, employee expenses were Rs82.83 crore whereas in the 12 months ended March 2012, it had jumped by 95% to Rs161.91 crore.
In the same period, sales revenues had increased by only 34% from Rs396.81 crore to Rs531.52 crore. Thus, the base was set for a huge jump in the sales revenues and profitability in the years to come. All the plans were on target but all of a sudden SEBI had become very strict about the June 2013 deadline stating that there would be no extension.
To meet this, Astra adopted a seemingly innocent strategy of cleaning up its operations but the ulterior motive was to force the minority shareholders into submission by pressurizing them into tendering their shares in the next delisting offer at the lowest possible price. The game plan was reflected in the following statement of the annual report of 2012: “As a measure of extra and abundant caution, the company undertook a voluntary recall of sterile products manufactured at its Bengaluru plant of a value of Rs26.8 million, following AstraZeneca Worldwide Audit Group’s (WWAG) quality audit.
As a precautionary measure, the company also voluntarily suspended production temporarily to review manufacturing practices at the plant resulting in a temporary interruption of supplies. The net sales of the products affected by supply constraint amounted to Rs272 million in the last quarter ended 31 March 2012 as against Rs606.8 million in the quarter ended 31 December 2011.”
The sales revenue declined from Rs.153 crore in December 2011 quarter to Rs92, 91 crore and Rs99 crore in the subsequent three quarters of this calendar year as a result of this seemingly innocent strategy of voluntary recall and suspension of production. The audit has taken more than three quarters the reasons for which can be explained only by the company. Probably The CAG is faster than this! As a result of this, the profit after tax has declined from Rs15 crore in the December 2011 quarter to a loss of Rs33, 8 crore and Rs45 crore in the next three quarters.
In fact, the cleaning up took such an unholy turn that the company had suddenly realized that it had to write off deferred tax assets worth Rs24 crore in September 2012 quarter. Basically it did anything and everything to increase the losses. As a result of all this, the share price of Astra has declined from a high of Rs2,640 in April 2012 to around Rs1,450 now. So the delisting which should have taken place at Rs3,000 plus based on the results till December 2011 could now be well below Rs2,000, thus making the parent richer by approx Rs250 crore.
The opinion privately expressed by the minority small shareholders of the company at this year’s AGM was that the company was trying to force them to surrender and that they would helplessly have to accept whatever price the company dictates in the next yet-to-be-announced delisting offer. This brilliant but devilish strategy of a so-called “reputed multinational” is probably a trend-setter for many other ‘reputed’ companies who wish to meet SEBI’s deadline. AstraZeneca is on course to achieve its decade long plan to delist its shares from the Indian bourses by hook or by crook. One wonders what the so-called independent directors are doing!!
IKEA Group, which manufactures and sells home and office furnishing products, proposes to invest Rs10,500 crore in single brand retail trading in India through its subsidiary
QNet, the MLM company which has become active again in India, cannot provide answer to a single question asked by us. Instead it sent us a threatening and defamatory mail that raises more questions as to their real motive
QNet, the controversial Hong Kong-based multi-level marketing (MLM) operator with multiple names (GoldQuest, QuestNet, QNet, QI Ltd and QI group are the better known names) refused to answer simple questions like how much money their independent representative (IR) earns on an average every month and why their products are priced so highly.
Instead Zaheer K Merchant, director for corporate affairs at QNet, sent us a mail (after five days) which not only admits that the company tried to bribe us, but has also threatened us accusing Moneylife for targeting only QNet not other MLMs. As regular readers of Moneylife know, we have been writing on a large huge number of MLMs, pyramid or ponzi schemes. A simple search of www.moneylife.in would reveal scores of stories of these shady schemes. Here is a quick rundown on how Moneylife has never flinched from reporting on the corrosive influence of MLMs whenever it has had a chance to.
Remember Speak Asia, Stockguru and NMart? Even mainstream media has acknowledged that Moneylife was the first to expose them. Moneylife flagged Speak Asia as a fraud, way back in October 2010. In December 2010, Moneylife had reported about the dubious modus operandi of Stockguru.India and advised investors to stay away from investing in the company. It collapsed much later. Similarly, in August 2011, we informed our readers, how Surat-based NMart Retails, a division of Newlook Multitrade Pvt Ltd, is running a collective investment scheme (CIS) based on MLM model, under the guise of selling products through its retail chain. Needless to say all the three mentioned above duped lakhs of people. There are scores of other such examples.
Here are a few initial questions that we asked to QNet, which it has failed to reply…
1. What is the churning ratio of QNet Independent Representatives (IRs)? On an average, how many IRs join and leave the company in a 12-month period? What is the IR retention rate in this line of sponsorship? What is the renewal rate of IRs?
2. What is the average amount an IR typically earns in a year?
3. How many IRs earn less than $1,000 as commission in a year?
4. What is the maximum amount an IR had earned in a year as commission and royalty through selling QNet products and through selling promotional, motivational materials?
5. Are the products sold by QNet priced competitively? If not, how much is the difference? Is it true that QNet products are costlier by over 100% than similar products available in the market since you shell out 50% as commission?
6. Who has certified your nutritional and wellness products? Is there any certification from FDA (US FDA) available for the nutritional supplements you sell? Who decides whether a person needs nutritional supplements? Is it your IR or a qualified doctor?
7. If someone decides that the QNet business is not for him, what is your refund policy?
8. Does the business model really free people from their jobs or have they just replaced their job with another that has more risk?
9. Does the QNet business really allow the leaders more time with their families?
10. What are the chances that someone starts from the scratch and own an office in QI Tower*?
11. Are you registered in India? Who is the regulator, governing your business activities in the country?
12. What is the status of court cases regarding GoldQuest and QuestNet in India?
Instead, five days after our queries, Mr Merchant (now Director Corporate Affairs, who was projected as legal head in 2009) wrote to us with a series of counter questions. We publish them with our replies below each sentence…
QNet: We had invited your organisation and Ms Sucheta Dalal, to attend at our office in Hong Kong to provide her with every opportunity to review our operations.
Moneylife: This was in August 2009, soon after the police action in Chennai had closed down its sale of numismatic coins in a company called GoldQuest. Moneylife had written extensively about it and was constantly writing to Ms Usha Thorat, the then Deputy Governor of the Reserve Bank of India (RBI) asking why action wasn’t taken against the company. She in turn passed the buck on to chief secretaries of states by writing to them. We had already written a story “Coin Game” on the shady business of GoldQuest coins. It is obvious that this carefully timed media junket was seen as a way to ‘soften’ journalists with a paid foreign holiday rather than a review. Naturally Moneylife rejected it.
QNet: We made overtures to meet with her, and did do so in Mumbai some time back.
Moneylife: This is a lie. There has been no ‘overtures’. The fact is, ever since Moneylife has been campaigning against dubious MLMs and pyramids, both Amway and the Indian Direct Selling Association (IDSA) have long meetings at our office but could not answer many of our queries. Some of the questions asked to QNet were also asked to Amway. In fact, Amway representatives Richard N Holwill and Rajat Banerjee admitted to us that although some distributors tend to go overboard in pitching the scheme, income from being a distributor of Amway can, at best, be a source of additional income or pocket money for most people. It is not the pathway to riches as MLM companies make it out to be. However, Amway also insisted that there is no longer any joining fee and the model does not necessarily require enrolment of distributors. However, there was no answer to expensive nutraceuticals being prescribed by doctors, whose wives or relatives were Amway agents.
QNet: We had provided Ms Dalal with relevant information and material. Our distributors thereafter also met with her and attempted to communicate with her in connection with our business and its legitimacy.
Moneylife: Another lie. No distributor has ever met us in to communicate about the business or its legitimacy. The only person who met us, came as a close personal friend and on checking with him again, he insists that he had not met us as a QNet representative.
QNet: The fact that there is no express legislation governing the business in India doesn't make the same ‘illegal’ in the manner in which the same has often been cited and reported in the seminars and documents which your establishment presents.
Moneylife: This is a matter of dispute and debate. Mr Merchant agrees that they operated in a legally unclear area. He also indicated that QuestNet was being kept out of the Indian Direct Selling Association (IDSA) by a cabal of US MLMs such as Amway and Tupperware despite its best efforts. He also pointed out that these MLMs had not been facing problems in India.
The fact is there has been plenty of litigation on the issue, precisely because various authorities consider that the operations are illegal under the Prize Chits & Money Circulation (PCMC) Act of 1978. Moneylife Foundation, an NGO for spreading financial literacy has repeatedly warned people about falling for MLM and pyramid companies with innumerable examples of losses incurred. Moneylife Foundation sent a representation to the Prime Minister, Finance Minister, Governor of RBI and SEBI.
Former Expenditure Secretary EAS Sarma has also written to the PM and the Ministry of Corporate Affairs (MCA) about the need to check the proliferation of Ponzis and binary pyramids which are duping people. We have been specifically told by the Ministry of Consumer Affairs and the Ministry of Corporate Affairs that they are investigating these scams and plan action/tightening of legislation. To turn Mr Merchant’s argument on its head, just because our regulators are sleeping and scams are always discovered too late, if at all, does not make an unregulated scheme legal.
QNet: We have also found on several occasions that there is a marked level of partiality towards reporting inaccurate material about our business.
The discussions which have come about as to your site and seminars and the ‘talk’ is, contrary to what is projected by you as to being industry watchdogs with care and concern for the people allegedly duped by MLM business, you seemingly prefer certain MLM companies over others. The mantle almost of a crusade is thus assumed only against certain MLM entitles. Why do people have this impression? Can you please explain? I am certain that this is not the case, but I would appreciate your confirmation in writing to this assertion made by several other entities that you are not what you make yourselves out to be. Additionally, matters such as the success we have had in the courts are never dealt with. Preference is given in fact to reporting salacious and incorrect material, which is always unverified and inaccurate.
Moneylife: Mr Merchant prefers to throw unsubstantiated accusations. We prefer to offer facts. Only Moneylife has been writing about the menace of MLM schemes, including GoldQuest, QuestNet, Stockguru.India, JapanLIFE, Amway, Speak Asia, NMart, AdMatrix and so on. On the other hand Moneylife Foundation is helping people to become aware about money circulation or MLM schemes and is actively involved in making changes in the government policies through representations, memorandums etc.
It is laughable that Moneylife is accused of being partial towards any MLM when we alone are crusading against ALL such schemes. QNet should drop its defamatory and scandalous tone and please offer us one shred of proof.
Talking about getting in touch, we have been contacted by IDSA and Amway, who promised us to provide answers to questions raised by us. So what was stopping QNet from reaching out us? We reiterate that it was Moneylife which got in touch with QNet before writing any story and not the other way round as is being claimed by Mr Merchant.
QNet: Additionally, you have already written and filed a story which is defamatory, aside from being totally baseless and confused, about us. This leads to the possible conclusion that there is no real sincerity to the assertion that you are seeking information and wish to truly educate anyone. On the contrary, it begs the question whether any information given will be used properly, reported accurately or simply (worse as we have been warned about) that you may misuse or divulge information to other organisations which may be allied to you. The essential element is whether we will get a fair outcome or hearing, since the actions belie the request. The story is as below in the link pasted. Again, I am inclined to believe this cannot be case, but I would like formal confirmation in writing as to the same. Additionally, if you are going to publish your request for information and this response, please do us the courtesy of publishing the contents of this email in full as opposed to simply abridging and prefacing it wrongly. Your purported seminar on 23rd November also makes several assumptions and comments of us, preferring to lump us together with other (wrongful) companies quite baselessly. All these lead to concerns as to the points made above, which no doubt you will appreciate as much as address.
Moneylife: Before writing and publishing the current article, we contacted QNet through Mr Werner Fernandes whose company used to handle the PR of QNet, and gave them enough time to reply. However, instead of a simple reply, Mr Merchant sent a mail whose tone is threatening and defamatory.
According to Robert FitzPatrick, President of US-based Pyramid Scheme Alert, schemes like QNet or GoldQuest are an “endless chain”, or a “pyramid scheme”.
“I believe this form of fraud is a clear danger to national economies. They subvert efforts to accumulate wealth. They divert energy and funds from real businesses. They often divert people from seeking more education with their promises of fast wealth. They destroy savings and equity of lower income people. They confuse people as to what a legitimate value-based business is. Unless the regulators and analysts recognize and are willing to assert that this form of business is ‘inherently' fraudulent and harmful, it is rather difficult to stop any one particular company. Such a fraud, whether the products are soaps, gold coins, vitamins or air in a box, will always cause 90%-99% of the investors to ‘fail’. Whether some of the people engage in retail selling or not, the income promise that relies on continued expansion is deceptive, that is, it is a lie. The financial harm to the vast majority is predetermined. Calling it a business does not make it so. A real business requires an exchange of value," wrote Mr FitzPatrick to us. He is actively exposing several pyramid, ponzi and MLMs.
Mr FitzPatrik was involved in framing new law in Sri Lanka to deal with MLMs, especially GoldQuest. During 2005, the GoldQuest scheme spread across Sri Lanka, marketing gold coins for double their worth. Sri Lanka's central bank noticed that the equivalent in their currency of millions of dollars had left the country, a big drain.
What is sad is many people have left high-paying jobs to “pursue their dreams” in an MLM. Having been conned so dramatically, they do not easily admit defeat. It seems easier to cling to the bad dream in an increasing cycle of desperation to make the MLM work against all odds.
*QI Tower in Malaysia is where QNet founder Vijay Eswaran has his new office. (https://www.facebook.com/photo.php?fbid=521501461194473&set=a.204006466277309.56163.161033627241260&type=1&theater)