SAT effect: Mysore Cement on a roll

The scrip hit the upper circuit of 20 per cent and ended at Rs 34.70, rising the most since December 5, 2001. More than 5 million shares changed hands on the Bombay Stock Exchange, compared with the six-month daily average of 384,978 shares.

The Securities and Appellate Tribunal (SAT) dismissed the Sebi directive allowing the cement company to buy shares from the public at Rs 58 each instead of Rs 72.50 set by the capital market regulator.

 

According to sources, Sebi is unlikely to approach the Supreme Court against the SAT order as it wants the entire takeover guidelines to be re-visited.

SAT has overruled Sebi's directive in the past as well. In the UBS securities Asia case, Sebi appealed to the Supreme Court against the SAT order that barred the swiss major from issuing participating notes for a year. The matter is still pending in the Supreme Court.

In its January order, Sebi said it did not find merit in the non-compete fees arrangement as the "sellers/promoters to whom non-compete consideration has been paid consist of trusts and charitable institutions." Moreover, the existing promoter group (other than the sellers) continue to be represented on the board of the target company even after the acquisition.

"The sellers were part of the promoter group of the target company when it was a sick company and they could not revive the affairs of the company. It was only after the acquirers infuses funds that the target company was revived and came out of the reference of Board for Industrial and Financial Reconstruction," the order had said.

However,SAT counter argued that the non-compete fee is a perfectly justified payment, adhering to the takeover code.

"The fact that a company has fallen sick can not ipso facto lead to the conclusion that the management or the promoters of the company are incompetent...it would not matter if the promoter seller is a charitable or education organization, as these organisations along with the promoter have been as much involved in the business of the target company as the other promoter sellers. Considering that they belong to the sale group, these organisations would be capable as the others of generating competition," the SAT order said.

In a uniquely structured deal in July 2006, Mysore Cements had announced that it would allot up to 66.5 million equity shares to Heidelberg, representing a 42.08 per cent stake, on a preferential basis at Rs 54 apiece.

Heidelberg would also buy 13.40 million shares amounting to a 8.48 per cent stake from the promoter group for Rs 58 a share, excluding non-compete fees of Rs 14.50 a share.