1. With its share price at around Rs. 93 (market cap Rs. 900 Cr app) on January 22 2019, Prabhat Dairy announced the sale of its dairy business constituting 98% of its revenues, to a French company for Rs. 1700 Cr, almost twice its market capitalization. Share price zoomed 20% till Rs. 110 and collapsed 30% to Rs. 79 - all of this on the same day. Price strangely closed over 15% down on the day of the announcement, perhaps a first. The business was transferred as a slump sale and the sale of a step down subsidiary's shares, for a consideration of Rs. 1700 Cr. Later on, it transpired that the consideration was actually Rs. 1700 Cr + Rs. 180.85 Cr for ‘agreed debt repayments’ (Company’s subsequent letter to SEBI dated March 13 2020) i.e. a total of Rs. 1880.85 Cr. So the first figure to remember in this saga is the sale consideration of the entire business was Rs. 1880.85 Cr (i.e. Rs. 192.56 per Share)
2. The Company promptly issued a
statement on March 25 2019 (one day before the EGM scheduled for approval of
the dairy business sale transaction) that “it is the intention of the Board to
distribute the net proceeds of the transaction to the members of the Company in
due course after meeting tax & indemnity obligations…”. Same day, the Company
issued an update that Escrow account is being set up for the utilization of the
net transaction proceeds and a Board Committee (including three independent
directors) would monitor the use of proceeds for the shareholders. The EGM
approved the transaction even though proxy firms advised voting against it.
Almost 99% of the institutional voters (present & voting) voted against the
resolution but the resolution was still approved by overwhelming majority as
few shareholders actually never cast their votes while the promoters always do.
(The
author has been crying hoarse to SEBI to implement its own Takeover code especially
Regulation 4 of SAST 2011 which mandates an open offer for takeover of control even
without buying shares. Till date, SEBI has never implemented it even though
SEBI finds it so important that it has been carried forward in the new 2011
Takeover code from the earlier 1997 code. )
On
March 27 2019, the Company said “…it is clarified that no part of the proceeds
from the transaction will be deployed towards residual business…”.
It was specifically mentioned at the March 2019 EGM that app. 1000-1200 Crore may be available for distribution to shareholders, this is the second figure to remember. This was after accounting for taxes on the transaction, transaction costs, debt repayments and claw-back provisions as per SPA with the French company. The transaction was accounted for in FY 2018-19 books and assets were classified as "held for sale" and subsequently the sale consideration was duly received.
3. On September 5, 2019, without distributing the net proceeds as per announced intention, the Company stunned the market announcing its delisting proposal.
4. On complaints of impropriety from several shareholders and lack of satisfactory explanations, SEBI on July 17 2020 approved the appointment of Grant Thornton as forensic auditor for FY 18-19 and FY 19-20. The Company and its MD refused to co-operate with the forensic auditor repeatedly and even questioned its independence.
5. On July 31 2020, the Company informed the Stock Exchanges that the net amount available after debt repayment, indemnity provisions under SPA, transaction costs and taxes is Rs. 878.29 Cr. (Company had earlier informed SEBI that Rs. 854 Cr had been transferred to Escrow account set up for distribution to shareholders). This is the third figure to remember, net amount available for distribution Rs. 878 Cr.
6. Vide its interim order on October 20 2020, SEBI said “…the replies given by the Company clearly indicate that the Company has been evasive as regards the details concerning the amounts stated to be lying in the Escrow account for distribution to shareholders…. the Company and its MD have repeatedly failed to co-operate with the forensic auditor….”. It directed the Company to deposit Rs. 1292.46 Cr to an interest bearing Special Escrow account with SEBI and facilitate the forensic audit. The order was appealed by the Company and on November 20, 2020, SAT ruled in favour of the Company saying delisting needs to proceed irrespective of forensic audit. Another SEBI order was given in December 2020, again SAT quashed the revised order and directed the delisting to be approved on March 4 2021 and finally the delisting proceeded at breakneck speed.
7. The delisting was declared successful on March 31 2020 at a declared Exit price of Rs. 101 with Promoters garnering 95.4% (earlier 50.1%) at a cost of Rs. 447.3 Cr. + say another Rs. 45 Cr. to acquire the balance ie Rs. 492 Cr. So the fourth and final figure to remember is that Rs. 492 Cr will be the final bill for Promoters to acquire 100%.
In a nutshell, of the Rs. 1881 Cr. total consideration, only Rs. 492 Cr gets distributed and Promoters acquire 100%. Is this fair? Will the forensics audit ever be completed and will SEBI ask the Company for upward revision of the Exit price?
THE BIGGER QUESTION REMAINS: WHY DOES SEBI NOT AMEND THE REGULATIONS AND MANDATE FULL DISTRIBUTION TO ALL SHAREHOLDERS WHEN THE ENTIRE BUSINESS HAS BEEN SOLD?
HELLO, GOOD MORNING SEBI.
