Sweet deal for Cadbury India's minority shareholders

The chocolate may turn a tad bitter for Cadbury India. In a clear victory for the chocolate maker’s minority shareholders, Ernst & Young (E&Y) — the Bombay High Court-appointed valuer — has recommended a 30 per cent premium to the company’s valuation than what was prescribed by two independent valuers, Bansi S Mehta and SSPA.

Cadbury had hired them for its proposed buyback of shares at Rs 500 a share in 2003.

Before being bought over by Kraft in February, Middlesex, UK-headquartered Cadbury Plc was in the process of a complete buyout of all minority shareholders. The parent firm, which owned 97.58 per cent in its Indian arm, had later increased the buyback offer to Rs 1,340 a share.

However, minority shareholders with just 2.42 per cent shareholding were not happy with the offer and had approached the Bombay High Court in 2009. According to them, the company-appointed valuers had looked only at the profitability of the company and ignored the value of its assets.

Cadbury India has significant assets nationwide. It has five factories located at Thane and Induri (Maharashtra), Malanpur (Madhya Pradesh), Baddi (Himachal Pradesh) and Bangalore (Karnataka). Its headquarter is located in Bhulabhai Desai Road, a posh south-Mumbai locality.

“To my mind, this is the first time a court-appointed valuer has given higher valuation than the company-appointed valuer,” said Hinesh Doshi, a chartered accountant and vice president of Investors’ Grievances Forum (IGF), a Securities and Exchange Board of India-recognised investors' association. “This is a very big decision. Because of this, a lot of people will start objecting to the valuation done by company-appointed valuers.”

Cadbury’s minority shareholders are, however, not rejoicing yet.

“It’s a small victory,” said a minority shareholder, who owns more than 5,000 shares of Cadbury India. “We will study the E&Y report and decide on our next step.” The general feeling is that the premium that Kraft had paid Cadbury for the global buyout was to a large extent based on its growth prospects in developing markets such as India, but that value had not been proportionately reflected in the buyback offer.

Interestingly, E&Y’s higher valuation is based on the September 30, 2009 numbers. Bansi S Mehta and SSPA had also relied on the same numbers.  

Both the Cadbury management and the minority shareholders have three weeks to file objections with the court.   

Former Cadbury India managing director and the incumbent president, Kraft South Asia and Indochina, Anand Kripalu, told Business Standard: “The court papers are still not with us. Once we get them, we shall decide the next course of action…We have the next hearing coming up in two weeks' time.”