Merchant bankers will now give ?fairness opinion? on mergers

In a move to safeguard the interest of shareholders, the Securities & Exchange Board of India (Sebi) has made an amendment to clause 24 of the Equity Listing Agreement of the Sebi Act 1992, introducing a concept of a ?fairness opinion? to be given by merchant bankers at the time of mergers.

The amendment is applicable to both listed and unlisted companies being merged; and companies will now be required to appoint an independent merchant banker for giving a fairness opinion on the valuation done by other valuers.

?Further, the ?fairness opinion? of the merchant bankers shall be made available to the shareholders at the time of approving the resolution under Clause 24,? the amendment adds.

This has been done with a view to having an independent body judge the validity of valuation numbers. There have been several cases where a listed company has merged its unlisted subsidiary or even a group company at handsome valuations, at the cost of the retail investor, said a merchant banker not wanting to be named. And even though PE players usually have their own due-diligence and valuation teams, they sometimes forego this process if the deal size is not very significant.

The amendment also took the issue of submitting consolidated financials forward and now a listed company, in addition to submitting quarterly and year- to-date standalone results to the stock exchanges, can publish consolidated financial results only. And the company would have to place a limited review report on un-audited financial results before its board before submission to stock exchanges only if the variation (as defined in present Clause 41) between un-audited financials and financials amended pursuant to limited review for the same period exceeds 10%.

And, if the listed company chooses to submit un-audited financial results for the last quarter (instead of submitting audited financial results for the entire financial year within three months of end of financial year), the limited review report shall be submitted for the last quarter also, the amendment adds.