Late on Monday, Prabhat notified to the stock exchanges that Lactalis’ Indian subsidiary Tirumala Milk Products was acquiring its dairy business for Rs 1,700 crore.
In early trade, shares of Prabhat soared 20 per cent to Rs 111. However, there was heavy selling pressure during the later part of the day, and the stock ended nearly 30 per cent lower, at Rs 79.5, from the day’s high.
On Monday, Prabhat’s market capitalisation stood at Rs 900 crore. Investors initially perceived the deal value to be attractive but a closer analysis raised concerns that minority shareholders may not gain much from the sale.
“Given the market capitalisation of Prabhat Dairy, the deal initially looked attractive to investors. But we are negative on the deal as the promoters are selling 98 per cent of total company revenue but Prabhat Dairy shareholders will only benefit from 29 per cent of the sale value. This is because Prabhat Dairy owns only 29 per cent directly in the company being sold, while the rest is held by promoters through another firm, Cheese Land Agro,” said Sameer Kalra, equity research analyst and founder, Target Investing.
Experts said as the diary business contributed to bulk of Prabhat’s revenues, the fate of the company looked uncertain once the company parts with it.
“What will be left with the company once the diary business is sold. Prabhat might end up as a shell company. Also, only a fraction of the Rs 1,700 crore that is being paid by Lactalis, will come to minority shareholders,” said an analyst requesting anonymity.
J N Gupta, managing director, Stakeholder Empowerment Services, said investors should probe the deal and ask all the relevant questions to the management before approving the deal.
Legal experts said the transaction will be an ordinary resolution and minority shareholders may not be able to block it. Unlike a special resolution, which needs to be approved by the minority shareholders, promoters are also allowed to vote on an ordinary resolution.
At the end of December quarter, the promoter shareholding in Prabhat stood at 50 per cent. Among the public shareholders of the company were DSP Mutual Fund, Sundaram Mutual Fund, Ontario Pension Board and Mondrian Emerging Markets Fund. India Agri Business Fund and Societe De Promotion held 14.4 per cent and 8.7 per cent stake, respectively, in Prabhat as on December 2018.