Column: Does majority equal minority?

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SummaryAnil Agarwal tried in 2008 and failed. Last year, in its second attempt, the Agarwal-led Vedanta Resources succeeded in restructuring the group via a scheme of arrangements that merged group companies Sesa Goa and Sterlite.

The Companies Bill and Sebi have both taken considerable steps towards empowering minority shareholders

Anil Agarwal tried in 2008 and failed. Last year, in its second attempt, the Agarwal-led Vedanta Resources succeeded in restructuring the group via a scheme of arrangements that merged group companies Sesa Goa and Sterlite.

At the Sesa Goa shareholder meeting, 91.7% of voters present, representing 79.12% of votes in value favoured the merger resolution—promoter shareholding in Sesa Goa stood at 55.1%.At the Sterlite shareholder meeting, 89.75% of voters present, representing 92% of votes in value favoured the merger resolution—promoter shareholding stood at 53.3%. In both meetings, the votes cast in favour of the scheme exceeded the minimum requirement (special resolution: greater than 75% by value, greater than 50% by number of those present), despite analysts’ misgivings about the merger, and proxy advisory firms’ recommendations that shareholders vote against it.

More recently, analysts and investors protested a hike in royalty payments by Indian cement companies ACC and Ambuja to parent Holcim. But the resolutions needed a simple majority to pass and promoter Holcim’s more than 50% stake in each company saved the day. In both companies, an overwhelming majority of public shareholders’ votes were cast against the royalty hike but...

There are dozens of such instances where minority investors in Indian companies have ‘almost won’ their battles against the majority (read promoter or ‘controlling’) shareholders. Now victory seems more certain.

Here’s why. The Companies Bill 2012 has taken a giant step—it mandates that all related party transactions (RPTs) need the approval of a majority (at least 75% in value) of disinterested (public) shareholders—thereby reducing the majority shareholder (promoter) to a non-voting bloc. Simply put, elevating the minority to a majority. In the last few months, Sebi has taken that position further. In January, it notified new requirements for the approval of schemes of arrangement proposed by listed companies. All schemes now need the approval of a majority of public shareholders. Sebi says “The Scheme shall also provide that the special resolution shall be acted upon only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.” That’s a super majority of the minority!

Then last month, Sebi, in a discussion paper on corporate governance, proposed ‘majority of minority’ approval for RPTs (aligning with Companies Bill, 2012) and has gone an extra

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