Vote against DishTV-Videocon merger: SES asks shareholders

SES cites insufficient disclosures regarding valuation of two companies and swap ratio

Stakeholders’ Empowerment Services (SES), the corporate governance advisory, has asked shareholders of Dish TV India to vote against its proposed merger with Videocon D2h.
 
The scheme of arrangement to give effect to the merger is coming for approval at a court-convened meeting on Friday. About 857.78 million new equity shares of a Rs 1 face value of Dish TV India will be issued to shareholders of VideoconD2h. A valuation report and fairness report has been had but SES says there is a lack of transparency. It argues these fail to disclose the valuation of the transferor company and the basis of arriving at the share exchange ratio.
 
“SES raises a technical concern on the content of the valuation report and fairness opinion, as none of these reports disclose actual valuation of each company. Without knowing this, the share exchange ratio cannot be calculated. To arrive at the ratio, the valuation of each company should be provided in the report. Therefore, SES recommends that shareholders vote against the resolution,” it has said.
 
Asked for comments, a Dish TV spokesperson referred to a press release which said they were pleased to announce approval of the Competition Commission of India for the proposed scheme. “The company has already received approval from the Securities and Exchange Board of India (Sebi), National Stock Exchange of India and BSE,” the release added.
 
Dish-Videocon is the latest case where proxy advisory firms and corporate governance experts have been highlighting issues relating to the valuation Report and fairness opinion, for a while. These reports, say these critics, are being used for only cosmetic purposes, for technical compliance with the law of the land. The problem associated with these reports cannot be said to be company-specific; they appear to be a custom of the trade, they have argued.
 
By law, these reports must be independent. Hence, it would seem the blame lies with the agency preparing these, rather than the company for any shortfall. “On the face of it, the logic appears to be strong and favours the company. However, the next question comes -- who pays for the reports? Although, eventually, it is the shareholders who pay, the company chooses the agency. Should the company not demand better work, compared to theoretical reports that have no worthwhile information?” SES asks.
 
It has since taken up the issue with Sebi, asking the regulator to either do away with the requirement of a valuation report or make these meaningful. The Sebi response is awaited, says SES.