Has Reliance Communications disclosed enough on Aircel merger?

Proxy firm feels valuation details inadequate; firm says report follows accepted methodologies

The proposed merger of telecom giants Reliance Communication (R-Com) and Aircel has triggered a debate over the kind of disclosures necessary on the valuation of companies.

R-Com, the listed firm belonging to the Anil Ambani group, proposes to demerge its telecom business and transfer the same to Aircel. After this, the company will own a 50 per cent stake in Aircel. As required under law, the company has obtained a valuation report from an independent valuer and disclosed it. The court-convened meeting to approve the proposal is coming up next week.

However, proxy advisory firm Stakeholders' Empowerment Services (SES) is of the opinion that the valuation report is of little use as it fails to disclose the valuation (monetary value) of the business and only gives the share exchange ratio of 1:1. "Shareholders are at loss to understand from where the ratio is suddenly arrived. SES is of the view that valuation of each company should be provided in the valuation report and brought to the notice of the shareholders. Therefore, SES is unable to find value of businesses being demerged, merged specially as it is demerger of divisions and unlisted companies, hence recommends that shareholders vote AGAINST the Resolution."

SES has said in its report that "information given is not sufficient for an informed decision by shareholders. This a complex multi-stage scheme involving divisions of listed companies and unlisted companies. An independent complete valuation must be disclosed rather than a share exchangeratio alone."

An R-Com spokesperson referred to a voting recommendation by Institutional Investor Advisory Services that had asked shareholders to vote in favour of the same proposal. The spokesperson added the notice and explanatory statements for the meeting of the shareholders is complying with all the disclosure requirements under section 230 of the Companies Act, 2013, and applicable rules.

"The notice and explanatory statement is providing all the material information, including supplementary accounting statements of all the Companies involved in the scheme and the valuation reports. Further, Sebi and stock exchanges have perused the scheme, valuation reports and other relevant documents before granting their approvals," he said.

The company further informed that the valuation exercise was carried out by S R Batliboi & Co LLP, which is a reputed firm of valuers, and they have arrived at the value of both the companies based on the generally accepted valuation methodologies. "The valuation reports have been annexed to the notice and explanatory statement of the company at the value of both the companies based on the generally accepted valuation methodologies. The valuation reports have been annexed to the notice and explanatory statement of the company," the company added.