MINORITY SHAREHOLDERS - HALLA BOL!
By Ruma Dubey
Two days ago, the Rohtak sisters showed to the rest of India that they very well know to protect themselves and also know how to bring the culprits to book, all by themselves with the rest in the bus gawking, hooting and even laughing. The onlookers were the most shameful lot, more so that the culprits!
And a day prior to that, minority shareholders showed who was in control at United Spirits. At an EGM held on 28th Nov, the shareholders of United Spirits rejected 9 out of the 12 resolutions. They rejected the approval to a loan agreement between the company and United Breweries, rejected pacts between the two to sell certain immovable properties. They also did not give approval to a services agreement between USL and Kingfisher Finvest India, rejected a sponsorship pact between USL and United Racing & Bloodstock Breeders and also disapproved a sponsorship pact between USL and United Mohun Bagan Football Team Pvt Ltd. The only three resolutions passed were related to erosion of net-worth of the company, a sales promotion agreement and trademark licence pact. Incidentally, all the rejected pacts were made by Vijay Mallya.
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 in July, 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. Well, the minority shareholders have challenged this ruling of Bombay HC too.
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. The fund houses were pretty unhappy about this development and all around seven of them have raised the red flag. Post this, Maruti decided to seek minority shareholders' approval after tweaking some of the earlier proposals for the controversial Gujarat plant. Voting for this is expected to happen sometime this month. To get this to go through, 75% of the minority shareholders who have a 44% stake in the company, need to give their nod.
And then 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. Yet all 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? It’s reassuring that we have the institutional investors who are playing the role of the Rohtak sisters though sadly, we retail investors are just the onlookers.