Mallya ensures big say in MCF if Poddar takes over

UB can appoint 3 directors as compared to Adventz's single director

Vijay Mallya, chairman of UB Group, will have considerable say in the management of Mangalore Chemicals & Fertilizers (MCF) even if Saroj Poddar’s Adventz Group wins the battle with Deepak Fertilisers for control of the company.

Mallya will remain chairman for the next five years; can appoint three directors on the MCF board, compared with one for Adventz; and have the right of first refusal over Poddar’s shares, according to an agreement signed between UB Group and Adventz on May 12.

A bidding war over MCF was triggered when Pune-based Deepak launched a takeover offer to MCF shareholders, after acquiring 24 per cent stake in the company last year.

The agreement says Adventz Group will exercise its voting rights in accordance with UB Group’s prior written instructions in respect of any amendment in MCF’s articles of association pertaining to UB Group’s right to appoint three directors, and any increase in the company’s existing issued and paid-up capital. Currently, while UB Group is not in a position to finance the competing offer, Adventz is willing to do so and participate in the MCF management; it has launched a competing offer at Rs 68.55 a share, against Deepak’s Rs 63-a-share offer.

When contacted, Saroj Poddar confirmed this, saying MCF was primarily Mallya’s company. “It’s a joint venture and I am joining hands with him. So, he will be chairman for the next five years. That is the arrangement so far,” Poddar told Business Standard. Poddar is yet to decide who will be director from his side on the MCF board.

The agreement says UB Group and Adventz will have the right of first refusal over each other’s shares. However, the right is not applicable in case of any sale of shares held by UB Group by way of a compromise with bankers after any court order. Currently, UB Group holds 22 per cent stake in MCF, while Adventz holds 16 per cent.

The agreement between UB and Adventz says upon completion of the offer and for five years thereafter, in the event of the shareholding of the two groups being unequal, the group with lower shareholding will be entitled to equalise its shareholding with the other group by way of creeping acquisition, according to the Securities and Exchange Board of India’s takeover regulations. In the case of UB Group, it will have the option to purchase shares from Adventz so that the shareholdings of both are equal.

UB Group will also have the right to call upon Advenz to acquire UB Group shares for five years from the date of the agreement or for six months from the date of termination of the agreement, whichever comes later. In case UB Group exercises the put option in 12 months of completion of the offer, it will provide adequate representations, warranties and indemnities in favour of Adventz Group in MCF, till the date of exercise of such a put option.