A curious case is doing the rounds in Indian takeovers. INOX Leisures bought around 43% of Fame India, from its promoters at a price of around Rs. 45 per share. They have also made a tender offer at Rs. 51 for a 20% stake as they are required to do. All kosher, except Reliance ADAG (RADAG), a competing media house in the multiplex business has cried foul – they say they had made an offer for Rs. 80 per share and the private acquisition at Rs. 45 per share is unfair to the minority shareholders.
The takeover regulations mandate a compulsory tender offer of 20% where a person has acquired control or substantial number of shares of a listed company. The offer price in the tender offer is based on the historical price or negotiated price (in this case Rs. 45) whichever is higher. Thus it seems what INOX has done is wholly legal.
So is the claim of RADAG baseless. No, it is logical, but nonetheless not grounded in a legal requirement. What they are effectively saying is that the promoters of Fame ought to have sold to the highest bidder – which ordinarily they are not obliged to do because it is a private transaction between two persons. However, if RADAG was allowed to buy at Rs. 80 per share, the other shareholders (20% of them at least) too would have been entitled to the higher price.
Usually, this point is a non issue, because RADAG could always have made a competitive bid and that would have benefited minority shareholders. However, in this case because the sale is of such a large quantity (43% stake), RADAG would no longer be interested in a competitive bid. Is is bad for minority shareholders, yes. Is it illegal or in contravention of the takeover regulations, clearly no.
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