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Suddenly, the aroma of Indian basmati has got mixed up with the scent of gunpowder. A bitter battle is brewing as India’s biggest player in the rice market, Kohinoor Foods (formerly Satnam Overseas), which accounts for about 38% of the country’s basmati market, is trying to ward off what it sees as a hostile takeover bid.
The Kohinoor management has petitioned the Securities and Exchange Board of India and Company Law Board (CLB) accusing Mumbai-based Temptation Foods Ltd of leading a consortium that has covertly acquired a shareholding of almost 30% in Kohinoor Foods. These frantic calls to SEBI and CLB have happened in the last 15 days. The acquisitions, Kohinoor’s petitions to Sebi and CLB alleged, are in violation of the market watchdog’s takeover code, which mandates public disclosure by anybody seeking to acquire more than 15% of a company. It sought an ex parte interim stay from CLB on any further acquisition of Kohinoor shares by Temptation and 45 other entities listed as ‘‘acting in concert’’ with Temptation and a suspension of their voting rights. The list of respondents includes foreign Institutional Investors like Merrill Lynch Capital Markets Espana SA and Morgan Stanley Mauritius Company Ltd. Among them, Kohinoor alleged in its petition, these 46 entities have picked up shares in bulk since December 2007 adding up to 29.35% of Kohinoor’s equity capital. CLB in its order of June 20 – the day the petition was filed – suspended the voting rights of Temptation and the 46 others, but did not accept the plea for barring them from acquiring further shares. It also allowed them to respond to Kohinoor’s petition within three weeks. Temptation, on its part, had informed the Bombay Stock Exchange on June 18 that it had acquired a 3.79% stake in Kohinoor. The Kohinoor petition filed before CLB cites an investor meet and some TV mentions to buttress its claims that Temptation has been eyeing Kohinoor as a potential takeover target for some time now. The reason Kohinoor’s management fears a hostile takover is that the promoters’ shareholding in the company was 44.13% in March 2008 and is likely to have dropped to below 36% following conversion of foreign currency convertible bonds (FCCB) into equity shares on May 26. Following the conversion, Deutsche Bank held a 14.88% stake in Kohinoor and Rhodes Diversified had a 6.46% stake, but they have since made disclosures to BSE showing that their holdings are down to 3.52% and 4.15% respectively.In other words, the equity from converted bonds has changed hands, and from Kohinoor’s panic it is apparent that they have not moved to the promoters. With just 36% stake, the Kohinoor promoters are clearly vulnerable, and it might have been worse when the second tranche of bonds was to be converted in the first week of July. Realising this, Kohinoor informed BSE on Thursday that the conversion of the second tranche now stands cancelled. The announcement is a clear indication that the promoters are unwilling to risk any further dilution in their stake at a time when potential raiders are upping their own holding in the company. When contacted by TOI, Kohinoor joint MD Satnam Arora refused to comment on the developments. ‘‘The matter is sub judice,’’ he said. He refused to get drawn into any discussion on its petitions to Sebi and CLB. The fears of the Aroras, who control Kohinoor, may or may not be justified, but the company does present an attractive target for a takeover bid. With an earnings per share (EPS) of Rs 8.63 for the nine-month period ending December 2007, its current market price in the region of Rs 100 gives the scrip a price-earnings (P/E) ratio of about 10 on an annualized basis. That’s well below the average of over 17 for the sensex, for instance. The fact that Kohinoor is the biggest brand in the rice market with a 38% share makes its current market capitalization of under Rs 270 crore a small price to pay for acquiring even a 100% stake in the company.
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| Source: Times of India |