Tata Metaliks merger with parent faces challenge in court

Minority shareholders are planning to file an objection to Tata Metaliks' proposed amalgamation with parent Tata Steel in Calcutta HC

Minority shareholders are planning to file an objection against Tata Metaliks' proposed amalgamation with parent Tata Steel in the Calcutta High Court.

Minority shareholders led by Kumar Gautam Chauhan had moved the court in March, saying the Securities and Exchange Board of India (Sebi) required such schemes to be approved through e-voting or postal ballot. The company had instead opted for a court-convened meeting of shareholders.

Judge J Patherya in an order on March 21 had asked the applicants to file an objection when the proposal came up at confirmation stage. "The proposal has now come for confirmation to the court and the objection will be filed soon," said a Kolkata-based minority shareholder familiar with the plan who did not wish to be named. Chauhan could not be reached for comments. The Tata Steel spokesperson declined to comment. The amalgamation was first approved by the boards of of the two companies on April 10, 2013, with a merger ratio of four Tata Steel shares for 29 shares of Tata Metaliks. This looked fine with Tata Steel's closing price of Rs 305.5 and Tata Metaliks' Rs 45.1 on the day.

But minority shareholders objected because the announcement came within a week of Tata Metaliks' new sinter plant being commissioned at Kharagpur. The company had ended 2012-13 with a loss of Rs 87 crore so its stock price was depressed, they argued. Also, it had ended the year with a capital expenditure of about Rs 125 crore, including expenditure on the new sinter plant, which was expected to bring it back into the black.

Since then, the Tata Metaliks stock has gained 192 per cent to Rs 131.4 a share on Monday on the BSE as its earnings improved and it returned to profit. In the quarter ending June, it reported a net profit of Rs 34.32 crore and earning per share of Rs 13.57. Tata Steel's share gained 79 per cent to Rs 547.55 over this period.

With this, owners of 29 Tata Metaliks shares can buy seven shares of Tata Steel from the open market instead of the four proposed in the amalgamation scheme.

"The stock has gained on the earning improvement and that justifies the concern the minority shareholders had raised when the scheme was proposed," said an analyst with a foreign brokerage who did not wish to be named.

Sebi, in a circular on May 21, 2013, had asked companies to conduct a postal ballot or e-voting for various schemes of arrangements, including those involving listed companies and their promoter groups. Companies are required to file an affidavit if their scheme does not fall into this category. Tata Metaliks filed an affidavit, in which it mentioned it was becoming a direct subsidiary of Tata Steel and it did not involve any other entity.

"This is a clear case of the company (Tata Metaliks) testing the spirit of the Sebi circular. Minority shareholders should be allowed e-voting and the majority of the minority should prevail," said Shriram Subramanian, founder and managing director of InGovern Research. "The Sebi should also amend its regulations to cover such cases."