A top official in an FI, which has stake in BSES said: If a shareholder has a sizeable stake, larger than any other bloc in a company, he should have management control. I think the management control issue will play out favourably for Reliance with this offer, though probably Reliance should have got it earlier anyway. But there were historical reasons why this did not happen so far.
Even FIs concede that the public sector disinvestment model, where management control was given to strategic partners with stakes anywhere between 25-26 per cent, contrasts with the BSES situation where Reliance holds a much higher stake, but without control. Even after subsequent open offers post-selloff, the strategic partners have ended up in some cases with lower stakes in their companies than the Reliance stake in BSES. The FIs also hold 11 per cent stake in Reliance Industries, which is valued currently at around Rs 5,000 crore. Their 36 per cent BSES holding is valued at around Rs 800 crore.
FI sources also said the issue of management control for Reliance was being seen as clearly distinct this time from that of whether the FIs would sell their holdings in the second offer. The two issues are different, an FI official said. Different FIs with stakes in BSES may have different concerns to tackle and their liquidity positions are also different, prompting analysts to wonder whether a joint FI decision was at all a possibility this time.
The second issue which is being seen as crucial in the Reliance-BSES context is whether stakeholders would need to necessarily have a substantially higher stake for them to gain management control in companies. If Reliance had to make a second offer because after the first it still did not get control, does this mean aspirants for other companies will have to have more than FIs to pitch for control a fund manager asked.
The third, and an equally important, issue is that of the strength on the board of directors. While the FIs have three seats (with a Maharashtra government nominee holding another) in the BSES board, Reliance has two nominees, with three seats now vacant. Assuming three nominees are appointed to these seats, there would still not be a board majority for Reliance, since it would have only five seats out of twelve. Would this mean a majority on the board, which is a must for control
The Reliance view appears to be that the group, though armed with legal opinion that it can go for control even without an open offer, is doing so in the best interests of all stakeholders, and to avoid any confrontation. But sources say there is little conformity between the stakes FIs hold in some companies vis-a-vis their board representation in them. There are, for instance, companies where the FI stake is substantial, but they have only a single nominee, an analyst tracking the Reliance-BSES affair pointed out.
Reliance had made its first open offer even at that time aspiring for management control in 2000 at Rs 255 per share.