Sandoz Knocks Court Doors For Fresh Swap Ratio

Sandoz (India) has filed a petition asking the Bombay High Court to work out a fresh swap ratio for the companys merger with Hindustan Ciba-Geigy.

The petition was filed on January 13 and follows the December 7 extraordinary general meeting where Sandoz shareholders rejected the 10:17 swap ratio and called for a fresh valuation.

The petition will be heard sometime next month.

The swap ratio was fixed by Arthur Andersen & Associates, Coopers & Lybrand and Bansi Mehta & Company and was approved by the two companies boards in October 1996.

The three valuers had come up with ratios of 1:1.8, 1:1.5 and 1:1.625, which were then averaged to give a ratio of 1:1.7, giving a Sandoz shareholder 10 shares of Novartis for every 17 shares held in Sandoz.

 

Before this petition, Hindustan Ciba-Geigy had filed a petition in the high court on December 23 asking the court to reaffirm the ratio.

Ciba shareholders had approved the merger and ratio at the extra-ordinary general meeting on December 10. Ciba sources said they would watch the developments.

Arthur Andersen sources said the stage was now set for a legal battle. This is the first time a company has moved the high court asking for a revaluation of the merger ratio and

the outcome would be eagerly awaited.

The Swiss parents of both the companies, Ciba-Geigy and Sandoz had decided to merge their worldwide operations in March last year to form a new company, Novartis AG.

The Indian subsidiaries decided to join hands in June and began groundwork for the merger.

If the court decides in favour of Sandoz and the new valuation is not acceptable to Hind-Ciba, the merger could be called off.

If the court decides against us and the new ratio is not acceptable to us, the merger is off, Ciba sources said.

Leading legal advisers say this is a remote possibility. Courts do not normally interfere if the valuation is done by experts.

Recent cases like the merger of Tomco with Hindustan Lever show that courts will disturb a scheme only if the challengers prove it is grossly unfair to them.

The courts only check to see if valuation norms have been followed, i.e. whether the swap ratio is based on a composite of net asset value, discounted cash flow, projected earnings or average market price of the stock of the two companies.

The court does not consider the weightage assigned to the criteria mentioned, a lawyer added.

During valuation, Ciba shares had been placed at Rs 1,469 on the lower end and at Rs 1,529 on the higher end. The share price for Sandoz India had been taken as Rs 118 at the lower end and Rs 126 at the higher end, on an average.

The total value of the enterprise, arrived at by adding the surplus assets to the profits generated by the business, was placed at Rs 390 crore at the lower end and at Rs 406 crore on the higher end for Hindustan Ciba-Geigy and at Rs 94 crore on the lower end and at Rs 100.10 crore on the higher end for Sandoz (India).

Kiran Mehta, president of the Sandoz Minority Shareholders Association, charged that the foreign valuers had not considered the two companies share prices and had attached undue importance to projected earnings.

He added that the Indian valuer, Bansi Mehta, had not given proper weightage to the past performance and the share prices of the companies.

One of the valuers admitted that share prices had not been taken into account because the future earnings method had been considered suitable.