Cadbury India has rejected demands of a premium from minority shareholders over the Rs 1,743 per share price recommended by Ernst & Young (E&Y) for the chocolate maker’s buyback offer.
In a hearing in Bombay High Court on Tuesday, Cadbury India’s counsel said the company was not willing to consider any premium on the E&Y recommended price as it would be liable to incur additional costs in terms of dividend distribution tax on the buyback price.
Cadbury India will have to pay 16.61 per cent tax (dividend distribution tax plus surcharge and education cess) on Rs 1,743 a share given to minority shareholders. This means, effectively, the company will have to shell out about Rs 2,032 per share to buy back the remaining 2.42 per cent stake from minority shareholders.
According to the company’s affidavit, it is already paying an additional amount over and above the value as evaluated by the independent valuers which can be termed as a “special benefit” to the shareholders.
“Cadbury India is subject to payment of tax as they have preferred to reduce share capital under Section 100 of the Companies Act, 1956 to get rid of minority shareholders. The same has no bearing on the applicability of premium over fair value of shares in case of mandatory buy out of minority shareholders,” said a minority shareholder, who is fighting the case against the company.
The next hearing of the case is on July 14, when minority shareholders will respond to the company’s affidavit. Cadbury India’s minority shareholders are of the view that as it is a compulsory buyback from the company, a premium over the E&Y recommended price is justified.
On June 25, the Bombay High Court had asked Cadbury India and its minority shareholders to settle the issue of premium among themselves and try to arrive at a consensus. However, that did not materialise.
Cadbury India’s then UK-based parent, Cadbury PLC, which owned 97.58 per cent stake in the Indian unit, wanted to buy back the remaining stake from minority shareholders. However, minority shareholders were not happy with the company’s offer and had approached the court, which in turn had appointed E&Y to revalue Cadbury India’s shares.