About Me

My photo
The Original CHAUKIDAAR ,“TAKEOVER WATCHMAN” since 2007. CA. Arun Goenka* hands-on experience in the share market* deep knowledge of laws and account*one of the early players, pioneered an investment strategy in TAKEOVERS*The WIRC - of The Institute of Chartered Accountants of India, has honoured him with the ‘Recognition of CAs in Social Service’. * often invited by National business news; electronic and print media, for his views on SEBI related matters. * history of red-flagging 100+ cases to SEBI* contributes by giving inputs in drafting amendments to the regulation* Some of the suggestions reflected in subsequent regulatory changes: (a). In takeover of Cairn 3,750 Crores non-compete fees waived off and ultimately Removal of Non-compete fee in 2011 (b) November 2009 amending Regulation 11 (1). (c)Listing agreement baring promoters from voting on related party. (d) Disclosure of past performance by merchant bankers in case of IPO (e) SAST 2011 regulation 10(1)(h), (f) Counter Offer in case of Delisting (g) Interest payment to all in case of delays in Open Offers(05.06.20).

Friday, March 26, 2021

Tata Steel - Bhushan Steel merger EGM today March 26: VOTE AGAINST THE RESOLUTION

SMALL INVESTORS’ WELFARE ASSOCIATION    

SirenBajao@gmail.com 


The Tata Steel - Bhushan Steel merger EGM today; March 26:

SHAREHOLDERS SHOULD VOTE AGAINST THE RESOLUTION FOR MERGER

1) THREE YEARS FOR COMPLETION:  The likely completion of the merger will happen in May 2021, literally on the third anniversary of the announcement of Tata Steel as the victorious bidder in NCLT. Three years ? For a company the stature of Tata Steel ?


2) THE SHARE SWAP RATIO: Interestingly, BSL performance has zoomed in recent quarters, what with the wheels of fortune smiling again at the auto industry (BSL is the country's leader in auto grade steel). Based on the latest annualised quarterly results, the BSL shares are currently quoting at a PE of less than 2 times pegged to the share swap ratio (1 share of Tata Steel to be allotted against 15 shares of BSL), while Tata Steel shares are trading at a PE close to double digits. So the question shareholders are naturally asking, "is the share swap ratio fair to BSL shareholders ?"


3) THE RATIO WAS DECIDED THREE YEARS BACK: The author justified the ratio in his mind thinking that it is unfair to see today’s performance, probably the valuation was based on 2017-18 financials when BSL was showing losses (has been under SFIO investigation for some time now) and the Singhals were cooking their books to stay afloat and solvent and Tata Steel was their white knight in shining armour. So for academic interest, he decided to dig out the Valuation report and Fairness opinion of 2018-19 and was in for a shock.



4) THE VALUATION REPORT: The fairness report simply says that the valuation is fair basis Valuation report, Scheme documents etc. So it all boils down to the Valuation report, which describes four methods:


(a) Income Approach: not considered  by Valuer as Tata Steel did not provide its projections

 

(b) Cost Approach: not considered as historical coat of assets for a loss making company “has limited relevance in valuation of a business as a going concern”.

 

c) Market Price Method: Average of last six months monthly average prices (VWAP) which concludes 1:15

 

(d) Market Price Method II: Comparable Companies Method where EV/Ebitda of comparable companies is to be considered. Then strangely, instead of comparing the EV/Ebitda of BSL with that of other comparable companies, it simply takes Enterprise Value of BSL, reduces liabilities (including preference shares) etc. and divides by no of shares to justify result of c above. So much for comparing valuation of similar companies. How could Tata Steel accept this, float it to the stock exchanges and file its merger scheme basis such a glaring error ? But we guess, when your reputation of governance is as strong as Tata Steel, you can get away with murder.

 

WHAT DO SMALL SHAREHOLDERS DO ? We do not question the buyout of BSL by Tata Steel, that is done and BSL is now 72%+ owned by a WOS of Tata Steel and that is fine. However, why short-change BSL existing shareholders? Let BSL continue as a listed entity, its share is worth well over Rs. 100 (December quarter EPS is Rs. 8.35 i.e. Rs. 33.40 annualised EPS). 

 

The court convened shareholder meeting is today, March 26 2021 at 3pm and e-balloting has already started. Majority of the minority has to approve (Tata group cannot vote). Should shareholders not vote for continuing BSL as an independent step down listed subsidiary of Tata Steel ? After all, it does not prevent Tata Steel from leveraging synergies; after all we have so many examples of parent and subsidiary both being listed (Birla’s, Vedanta..... and even Tata’s

 

SHAREHOLDERS SHOULD DEFEAT THE PROPOSAL FOR MERGER TODAY.

 

5 comments:

  1. Hello Sir,
    Merger news of today only updated in the TATA STEEL, not in the TATA STEEL BSL.
    It says that --> The Scheme was approved by the shareholders of the Company with requisite majority

    Tata steel shareholders would have definitely approved it bcoz there is lot of value for them.
    What about tatasteel bsl shareholders?

    ReplyDelete
  2. That has also been approved on 26 March 2021

    ReplyDelete
  3. can sebi or any authorised body take actions against this merger

    ReplyDelete
  4. the swap ratio is invalid today, so can this merger happen autonomously or nclt / sebi approval in needed

    ReplyDelete
  5. NCLT notification has been posted on 1st June, 2021 in India times. The same is available on BSE website under Tata Steel Bsl scrip. There are two emails given in the notification in the bottom. Shareholder must oppose this merger by writing to them with proper justification.

    ReplyDelete