ORDER
Madhukar, Member
1. BACKGROUND
1.1 Shricon Industries Limited. (hereinafter referred to as ‘the target company’) is a public limited company incorporated under the Companies Act, 1956, having its registered office at Empire House, 3rd Floor, 214, Dr. D.N. Road, Fort, Mumbai 400 001.
1.2 The equity shares of the target company are listed on The Stock Exchange, Mumbai.
2. APPLICATION FOR EXEMPTION
2.1 M/s Arani Agro Oil Industries Limited (hereinafter referred to as ‘the acquirer’) through their authorized merchant banker, M/s. Sobhagya Capital Options Ltd (hereinafter referred to as ‘the merchant banker’) made an application dated 08.11.04 under regulation 4(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 (hereinafter referred to as ‘the Takeover Regulations’), which was revised vide letter dated 24.11.2004 removing certain discrepancies observed in the original application. The said application is filed seeking exemption from the compliance of Chapter III of the Takeover Regulations including exemption from making public announcement, submission of letter of offer and provisions of escrow account with respect to the proposed acquisition of 2,48,000 equity shares with a face value of Rs. 10 each, of the target company, to be acquired by the acquirer from public shareholders of the target company in terms of requirements of regulation 10 and 12 of the Takeover Regulations pursuant to proposed acquisition of 7,82,300 shares from the existing promoters of the target company.
3. SUBMISSIONS IN THE APPLICATION
3.1 The acquirer have made inter alia the following submissions –
3.2 The present paid up equity share capital of the target company is Rs.1,24,00,000 divided into 12,40,000 equity shares of face value of Rs.10 each. The shareholding of the promoters of the target company is as follows:
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Sl. Name of No. % to the
No Shareholders of Shares total
held shareholding
---------------------------------------------------------
1. Harshavardhan Somani 1,50,000 12.10
2. Meena Somani 65,000 05.24
3. Kavita Somani 90,000 07.26
4. Shyamnivas Somani 50,000 04.03
5. Shriprakash Somani 99,900 08.06
6. Siddhant Somani 29,900 02.41
7. Shyamnivas Somani - HUF 1,00,000 08.06
8. Achala Somani 30,000 02.41
9. Meena. S. Somani 77,700 06.27
10. Shyamnivas B. Somani 89,800 07.24
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TOTAL 7,82,300 63.09
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The shareholding of public as on 30.09.04 is 36.91% of the paid up share capital of the target company. There are 97 shareholders in public category of shareholders in the target company.
3.3 The acquirer does not presently hold any shares in the target company. The acquirer proposes to acquire the above mentioned equity shares of Rs.10/- each of the target company held by the promoters at a price of Rs.15/- per share. The book value of the share is Rs.10.9 as on 31.03.04.
3.4 Consequent to the above, the acquirer will acquire 2,48,000 equity shares representing 20% of the paid capital of the target company with a face value of Rs.10 each at a price of Rs.15/ per share, through public offer in terms of regulations 10 and 12 read with regulation 21 of the Takeover Regulations. The proposed acquisition is for the purpose of acquiring control and management over the target company.
3.5 In respect of the said acquisition of 2,48,000 (20%) equity shares, the acquirer has sought exemption from making a public announcement, submission of Letter of Offer and provisions of Escrow Account in terms of Takeover Regulations. The exemption is sought in view of the following:
i. There are only 97 shareholders under the “Public” category.
ii. Open offer is not expected to evince much response. The individual intimations to the very few members will ensure better response and an advertisement in all editions of three papers serves no purpose than to burden the acquirers financially which resources can be profitably deployed in turning around the company. Moreover the members are not scattered and are located in specific pockets only.
iii. The shares of the company are infrequently traded. The shares are listed only at BSE where also there has been no trading activity for last several years except in the months of February to June 2004 only since so many years. The price of the shares proposed to be acquired under the proposed acquisition is determined in terms of regulation 20 (5) of the Takeover Regulations. The negotiated price is Rs. 15/-. The book value of the shares is Rs. 10.9. The offer price being offered is Rs. 15/- which is higher than the book value.
iv. Given the good track record of the acquirer, the members would look forward to the gains in stock and will be more interested in knowing the credentials and their plans which is best served by individual intimation than public announcement.
v. Since participation in the offer is not expected, maintaining the Escrow account in the bank also would block scarce resources for the acquirers which can be put to more profitable use of the company. Moreover, whosoever chooses to surrender his shares will be paid immediately and this will be ensured and implemented.
vi. An exemption from provisions of Chapter III of Takeover Regulations would ensure very quick completion of the open offer process in less than 30 days, unlike the normal time of about 3 months which will be to the benefit of the members choosing to exit, since they would receive the consideration at the shortest possible time.
vii. A Merchant Banker M/s Sobhagya Capital Options Limited has been appointed for the purpose and this will ensure that all provisions of Takeover Regulations and other applicable statutes will be complied with.
4. RECOMMENDATION OF THE TAKEOVER PANEL
4.1 The aforesaid application was forwarded to the Takeover Panel in terms of sub-regulation (4) of regulation 4 of the Takeover Regulations. The Takeover Panel, vide its report dated 13.12.04, has recommended as under –
“On the facts stated in the application, grant of exemption from making a public announcement only is recommended and that too subject to the Acquirer –
i) Writing individual letter of offer to each shareholders in public category of the target company directly offering to buy the shares held by such shareholders at the negotiated price of Rs.15/- per share;
ii) Sending such letters of offer to each of the public shareholders at the recorded addresses by registered acknowledgement due post and submitting certificate of auditor or independent Chartered Accountant to the effect that such letters are so posted.”
5. Further Submissions of the acquirer-
5.1 As the Takeover Panel had recommended exemption from making public announcement only and not from other provisions of Chapter III of the Takeover Regulations as sought by the acquirer a reasonable opportunity of making submissions was granted to the acquirer and vide letter No. CFD/DCR/RCTO/30512/05 dated January 07, 2005. It was pointed out to the acquirer that the exemption regarding making public announcement (under regulation 15) may be considered in respect of the proposed offer to public shareholders for acquisition of 2,48,000 equity shares of the target company in terms of regulation 10 and 12 of the Takeover Regulations subject to, the acquirer –
i) making individual offers to each of the public shareholders of the target company by registered post acknowledgement due offering to acquire their holdings at the price to be determined in accordance with the provisions contained in the Regulations but in any event not less than Rs. 15/- per share.
ii) appointing a merchant banker to oversee the entire process as per the Takeover Regulations.
iii) complying with all other applicable provisions of the Takeover Regulations except regulation 15.
The acquirer was also advised to indicate its desire of personal hearing before the competent authority.
5.2 Vide letter dated January 14, 2005, the acquirer submitted that the merchant banker M/s. Sobhagya Capital Options Ltd. is already appointed to oversee the entire process as per the Takeover Regulations. It has further submitted that it agrees with the other conditions subject to which the exemptions would be considered as mentioned above and that it is not desirous of a personal hearing. The acquirer, through its merchant banker, vide letter dated February 14, 2005 has further submitted that the acquirer has decided to acquire only 55% of the paid-up share capital from the promoters of the target company, instead of 63.09% as mentioned in the application.
6. FINDINGS
6.1 I have carefully gone through the application dated 08.11.04 as revised vide letter dated 24.11.2004 and taken into consideration the above mentioned recommendation of the Takeover Panel, the further submissions of and undertaking given by the acquirer and the relevant material available on record.
6.2 I note that the shares of the target company are thinly traded and that the shares were last traded on June 30, 2004. The total number of shareholders is only 107 out of which only 97 are shareholders in the public category. The book value of the shares in the target Company is Rs. 10.9. The offer price being offered is Rs. 15/- which is higher than the book value. I also note that the acquirer has undertaken to issue individual intimations to the 97 shareholders who are in public category and has sought exemption from making public announcement in terms of Regulation 15 of the Takeover Regulations. The acquirer has further agreed and undertaken to comply with the conditions as mentioned in para 5.1 hereinabove and that the acquirer has appointed Merchant Banker to oversee the entire process, as per the provisions of the Takeover Regulations. In this regard I agree with the submission that individual intimations to the 97 members will serve the purpose under the facts and circumstances of the case provided the acquirer fulfills the conditions as mentioned in para. 5.1.
6.3 I find that the acquirer has undertaken to acquire only 55% from the promoters instead of 63.09% as initially proposed. As per this undertaking the shareholding pattern in the target company before and after the proposed acquisition would be as under:
__________________________________________________________________________________
Shareholders Number of Before the proposed After the proposed
category registered acquisition acquisition
shareholders
as on date of
application
____________________________________________________________________________________
Number of % of shares Number of % of
shares/total /total voting shares/voting shares/
voting rights capital held rights voting
held rights
____________________________________________________________________________________
Promoter group 1 67468190 76.67 267468190 92.87
and Acquirers
1 312500 0.35 312500 0.11
(President of
India)
Governor of
Karnataka
FIs/Banks 9 2330195 2.65 2330195 0.81
FIIs/NRIs/OCBs 75 351684 0.40 351684 0.12
Public 28952 17537431 19.93 17537431 6.09
Total 29.38 88,000,000 100.00 288,000,000 100.00
____________________________________________________________________________________
*Includes corporate bodies.
**The figure indicates a case where the entire 20% offer is accepted by the public.
6.4 In view of the above facts and circumstances, I find that the present case is fit for granting exemption from making a public announcement, as required under regulation 10 and 12 of the Takeover Regulations. However, in respect of the exemption sought by the acquirer regarding maintenance of the escrow account, submission of letter of offer and such other exemption from Chapter III of the Takeover Regulation, I observe that in the interest of investors, the exemption may not be granted from these requirements in the present case.
7. ORDER
7.1 In view of the above findings, I, in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992, read with sub – regulation (6) of regulation 4 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirer, namely M/s Arani Agro Oil Industries Limited, from complying with requirement of regulation 15 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, with regard to making public announcement in the case of the proposed acquisition of 2,48,000 equity shares from the public subject to the following conditions:
i) The acquirer shall acquire only 55% of the shareholding of the promoters in the target company by means of the negotiated purchase.
ii) The acquirer shall make individual offers to each of the public shareholders of the target company by registered acknowledgement due post offering to acquire their holdings at the price to be determined in accordance with the provisions contained in the Regulations but in any event not less than Rs.15/- per share.
iii) The Acquirer shall file the draft letter of offer with the Board within 14 days of the receipt of this order and shall comply with all the other applicable provisions of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997.
iv) The merchant banker M/s. Sobhagya Capital Options Ltd. shall ensure compliance with the applicable provisions of regulation 24 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997