Bosch firm squeezes minority holders

Bosch Chassis' small shareholders allege forced exit via AGM decision; good exit opportunity for them, says firm

A group of minority shareholders are miffed by the decision of Bosch Chassis Systems (BCS), a multinational corporation, to force them out of the company through a share consolidation process. In its annual general meeting (AGM) on Wednesday, BCS, which got delisted in 2008, approved a proposal to increase the face value of its shares from Rs 10 to Rs 100,000 each.

The move, in effect, will reduce the holdings of about 4,300 minority shareholders to fractional holdings and eventually squeeze these out.

After the reorganisation, each shareholder will receive shares in line with the entitlement. All fractional holdings will be aggregated and the resulting number of shares transferred to a trustee for sale. The proceeds will then be distributed to the shareholders with fractional entitlements. Based on the recommendation of independent valuers, the company has fixed the sale price at Rs 600 a share.

This is the second Bosch group company to take the consolidation route. In July, Bosch Rexroth forced the exit of about 1,300 minority shareholders by this method.

Some of the small shareholders in BCS are not happy with the price or the manner in which the decision was taken, without negotiation or discussion, they say. Yogesh Doshi, a shareholder, said, “Coming from a company like Bosch, this is surprising. It is unfair and shareholders are helpless.”

A couple of others and he protested at the AGM, he said. However, the promoters had 97 per cent of the votes. The opposing shareholders requested for a provision that would allow them to continue to hold the fractional holdings. The management took a short break to discuss this at the AGM and even appeared to consult the headquarters. However, it was eventually decided to go ahead with the move, Doshi said.

Shareholders like him were hopeful of getting a mark-up on the company’s delisting price of Rs 600, given seven years earlier. “The top line (revenue) has gone from Rs 200 crore (yearly) to Rs 1,000 crore. In the next three years, it is going to double. The company is in a sweet spot, it does not need too much investment and does not want to share profits with minority shareholders.”

Doshi owned 4,500 pre-consolidation shares. He refers to the group’s listed flagship entity, quoting at around Rs 20,000, a price to earnings ratio (PE) of 85 times. “Whereas, we are getting only 30 PE for Bosch Chassis. The company is the only producer of such chassis, which has been made mandatory for all vehicles above 1,200cc,” he added.

The company, on the other hand, reasons that the move will benefit these shareholders, who now get an exit opportunity. Further, it says, overhead costs incurred on servicing the fragmented minority shareholding will be reduced significantly. An e-mail seeking comments, sent to the Bosch spokesperson, received an ‘out of office’ reply. Other executives were not available for comment.

Proxy advisory firm Institutional Investor Advisory Services (IiAS) said Bosch's was not an isolated case. It saw a similar pattern in other recently delisted companies such as Victor Gaskets, Bosch Rexroth and Micro Ink. In all these, a reorganisation of the share capital helped the company reduce its minority shareholding.

In such cases, even after successful delisting, a small portion of the stake remained with shareholders who did not participate in the offer to give in their shares. In most cases, the refusal to tender shares came due to differences over valuation. Companies then resort to more aggressive tactics, to squeeze out the minority shareholders.

“IiAS believes a more balanced approach is required. Companies, on their part, need to respect the views of shareholders and find a more amicable solution. They need to strengthen their communication with shareholders, in order to convey the rationale and appropriateness of the offer price. Shareholders too, need to be more reasonable,” the advisory firm has said.

Manipulative measures by the management create an atmosphere of mistrust, which dents the robustness of corporate democracy. Companies and shareholders must, therefore, find a common ground on exit decisions, it added.