Gillette buys more time for complying

SAT stay on deadline till next hearing on June 12, Sebi to file explanation of refusal

Gillette India, the personal care multinational’s arm here, on Thursday got a temporary stay from the Securities Appellate Tribunal (SAT) on meeting the minimum public shareholding requirement, the deadline for which expires on Monday.

It had petitioned after the Securities and Exchange Board of India (Sebi) rejected its proposal on the issue. SAT has told Sebi to file a reply in 10 days on Gillette’s objections and is to hear final arguments on June 12.

Currently, the promoter holding in Gillette India is 88.76 per cent, of which US-headquartered Procter & Gamble (P&G) owns about 76 per cent. The rest is held by the Indian promoters, the Poddar group. The company had requested Sebi to approve a three-pronged approach for meeting the minimum public shareholding requirement of 25 per cent.

Under their scheme, the Poddar group would transfer four per cent holding to P&G at a premium of 25 per cent. The premium would be paid for relinquishing control by the Indian promoter. Subsequently, the shareholders agreement between P&G and Poddar would be terminated, with the latter giving up all control and management rights. Finally, P&G would sell about five per cent holding in Gillette India to public shareholders through the offer-for-sale route.

Sebi has reservations towards allowing the residual holding of the Poddars to be classified as non-promoter holding for the purpose of meeting the minimum public shareholding requirement. Gillette's counsel, Somasekhar Sundaresan, said he told the tribunal each step of this proposal was in compliance with the regulations. The Poddar group would lose statutory and contractual rights by ending the shareholding agreement.

S K Poddar would resign as chairman and forgo Rs 1 crore yearly income as chairman. Also, as their residual shareholding in Gillette would go down to eight per cent, they wouldn’t be able to convene a general body meeting or litigate on operations under the Companies Act.

Sundaresan told the tribunal there was a list of companies where people owning far more than eight per cent had declassified themselves from promoters to public shareholders. If so, why couldn’t it be done in this case? The Blackstone-owned Gokaldas Exports, for instance, has amended its articles of association to reclassify its founders, the Hinduja family, as non-promoters.

SAT member Jog Singh said Sebi should consider whether this method (reclassification of shareholders) can be allowed as one of the routes for complying with the public shareholding requirement. He reportedly further said as Sebi had issued more avenues for companies to help pare promoter holding only last year, it could consider extending the deadline by two or three months.

In October last year, Gillette had officially sought guidance from Sebi on the proposal. A month later, Sebi said the proposed transaction wasn’t acceptable.

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Gillette's proposal for meeting 25 per cent public shareholding

• Promoter holding in Gillette India stands at 88.76%
• P&G owns 76%; Poddar group about 12.76%
• Poddar to sell 4% stake to P&G at 25% premium to market price
• Poddar to resign as chairman; give up control; to be a non-promoter
• Shareholder agreement between Poddar and P&G to be terminated
• P&G to be sole owner of Gillette
• P&G to sell 4.9% in Gillette via OFS