SHAREHOLDERS ACTIVISM – JAAGO SONE WALLOH, SUNO YEH KAHAANI!

On 9^th September, Brij Mohan Khaitan group company, McLoed Russel India’s largest tea company held its AGM. It was not just a routine meet; the shareholders, whom most companies take for granted, showed that they were one’s who were in control.

The shareholders voted against all the four special resolutions of McLeod Russel. The first which did not get the approval was the resolution to borrow any sum of money, which together with the current borrowing may exceed the aggregate paid-up capital of the company, its free reserves and securities premium.

The company also sought shareholders’ approval to give loans, make investments, provide guarantees and securities, in excess of the current limits by Rs 1,900 crore. This, in the background of the company’s borrowings standing at Rs.2000 crore, including working capital loans, was promptly nixed by the shareholders.

The two other special resolutions pertained to the approval of remuneration of managing director Aditya Khaitan and a waiver of the excess remuneration amount. Naturally, these two were also voted out by the shareholders.

Post this, the company is now looking at other ways to raise money.  McLeod is pleading with the banks to convert the short-term borrowings into longer maturities. The broad contours of the package will also involve selling more tea gardens to bring in fresh funds into the company. 

This is not the first time that we are seeing shareholders showing their might. A few years ago, at an EGM of United Spirits, the shareholders rejected 9 out of the 12 resolutions.

There have been other cases of minority shareholder vigilante or activism. Shareholders had rejected the proposed move by Ambuja Cements to buy majority stake in ACC through a complex deal. Prior to that Tata Motor’s shareholders stalled compensation proposals of top executives. And there was the case of Cadbury India too, where Bombay high court directed the company to pay Rs.2,014.50 per share to buy back its stock, 50% more than its original offer of Rs.1,340 made in 2009.

And the most hi-profile in recent times – Maruti Suzuki, who can forget that swift and collective way in which minority shareholders opposed Suzuki’s to set up a wholly owned plant in Gujarat, which in turn it will sell to Maruti. Suzuki was to earn 17% ROCE on the Gujarat plant and this plant would have zero cash flow.

There was also the case of Alstom, where once again minority shareholders opposed its move to sell its transport division to the parent company at a price less than its annual sales earned. It’s a different issue here that shareholders were left high and dry when the company went ahead with its plans as the promoters stake was higher at 68.5%.

But the issue here is that yes, minority shareholder activism is most certainly on the rise in India, stated to be the highest in Asia. Sadly though majority of the activism is initiated only by the institutional investors. Retail investors prefer to only grouse about it in their drawing rooms and then sell off, instead of trying to play the role of a vigilante. One can argue that a small investor cannot do much but what if all come together and oppose a wrongful move by the company? Isn’t that what we saw on McLeod on Monday? This is positive activism and we wish retail shareholders get more active; this movement alone could usher in a new era of leaders and transparency.