The deadly delisting itch of AstraZeneca Pharma India
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!!
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