Small investors stuck as open offers in limbo

Thousands of investors await exit as shares of Marg and Shree Rama Multi take a steep fall

Several small investors are stuck without exit due to indefinite delays in open offers announced by acquirers of companies such as Shree Rama Multi Tech and Marg Ltd. While Shree Rama investors have been waiting for seven years, the Marg open offer was announced in October 2011. Caught in legal disputes and regulatory directives, the investors are yet to get their promised exit. Even as the offers were stuck, the prices of these shares have plummeted, further diminishing the initiative of the acquirers. Marg shares ended Monday’s trade at Rs 31.20 a piece, nearly a third of its open offer price of Rs 91. Shree Rama Multi Tech has crashed from its offer price of Rs 18.60 a piece to Rs 5.90 at on Monday’s close.

Both companies have around 19,000 small shareholders, with holdings of less than Rs 1 lakh each, according to latest exchange filings.

The takeover regulations formulated by the Securities and Exchange Board of India (Sebi) require an acquirer who buys shares in a particular company above prescribed limits, to make an open offer to buy a certain amount of shares from the public. Email questionnaires and repeated attempts to reach company officials did not elicit any response.

Market watchers said the Shree Rama case dates back to 2002, when Nirma had bought convertible notes of the former. In 2005, Nirma came to own 24.25 per cent after the company defaulted. It also announced an open offer. But it later wanted to revise the offer as the market price of the stock was much below the conversion price. The acquirers, then wanted to withdraw the open offer obligations, after alleging siphoning off of funds by the promoters.

On June 5, 2008, SAT upheld the Sebi order, saying Nirma Industries and Nirma Chemical Works tried to wriggle out of a bad bargain, not permissible under Regulation 27(1)(d) of the takeover code. Later, in November 2008, Nirma Group moved the Supreme Court.

In the case of Marg Limited the market regulator, Sebi, ordered the company to raise the open offer price four times, as the company was repeatedly involved in takeover code violations. Sebi asked the company to revise the open offer proposed at Rs 91 a share to around Rs 340. According to the merchant banker, the company has moved the Securities Appellate Tribunal .

Nisha Shah, associate director, Motilal Oswal Investment Advisors, said, “The company has not accepted the charges which are framed by Sebi and the matter is with SAT. We are waiting for the SAT order to go ahead and execute the open offer.”

Amish Tandon, a lawyer with Krishnomics Legal, a Delhi-based corporate law firm, said, “The regulations only provide for certain specified situations under which a public offer can be withdrawn. Further, recent orders of Sebi and SAT suggest that situations such as a fall in market price of shares of the target company would not constitute a valid ground for withdrawal of a public offer. Further, the Takeover Code does not consist of any provisions which allow downward revisions in the offer price. Additionally, it may be borne in mind that the offer price is to be determined with reference to the date of the public announcement with respect to the public offer by the proposed acquirer of the target company.”

“Going by the current position set out by Sebi and SAT, the acquirers may be required to complete the public offer. In such an event, the shareholders who have tendered their shares subsequent to a letter of offer would be recompensed at the price initially offered by the acquirers and not at any reduced amount,” adds Tandon.