Sebi to decide on FGL arm status in takeover drama

Mumbai, January 20: | Updated: Jan 21 2002, 05:30am hrs
The Securities and Exchange Board of India (Sebi) will examine whether Warrior Investments and Forbes Campbell Holdings (FCH) were subsidiaries of Forbes Gokak Ltd (FGL) by subjecting them to a “merger test.” Simply put, the 35.5 per cent stakes held by Warrior Investments and FCH in one another will be discounted, and the resultant shareholding profile will determine whether they are indeed subsidiaries of FGL.

The issue is critical as the Pawankumar Sanwaramal group has contended that these subsidiaries sold FGL shares amounting to 11 lakh to the Pallonji Mistry group at Rs 90 a share. This, it is contended, is in violation of section 23 (1) of the Sebi Takeover Code, which states, after the announcement of an open-offer, the target company cannot sell or dispose of assets of any propriety without prior approval of its shareholders.

FGL on its part had contended that Warrior Investments and FCH were not its subsidiaries as it held only 49.5 per cent directly in these companies. Warrior Investments and FCH’s vice-chairman had earlier told he Financial Express that no violation of Section 23 of the Takeover Code had taken place.

When contacted, Sebi chairman DR Mehta said that he was not fully aware of the micro-details of the issue. It has been learnt, however, that a Sebi decision on the matter will come through this week.

The issue is largely without a precedent in the takeover history of corporate India. It has been gathered from well placed sources that Sebi had also referred the case to the Company Law Board (CLB), and that the upcoming “merger test” is to an extent based on the advice received from the CLB.

As of now, Warrior Investments has a 35.5 per cent stake holding by FCH with the remaining split shared among FGL at 49.5 per cent and Facet Asia at 15 per cent. In the case of FCH, Warrior Investments holds 35.5 per cent and the rest of the holding is the same as in FCH.

The merger test will “effectively” discount the 35.5 per cent cross-holding by Warrior Investments and FCH in one another. The effective stake-base will then be deemed at 64 per cent. In this revised scenario, to the extent that FGL holds a direct 49.5 per cent each in Warrior Investments and FCH, the effective stake in these companies will move up to 77 per cent — 49.5 per cent of the 64 per cent lower threshold.

It is not clear as of now as to who will have to take the rap if Sebi were to rule that these companies were the subsidiaries of FGL — the FGL board or the respective boards of Warrior Investments and FCH.

It is pertinent to note that sale of FGL shares by Warrior Investments and FCH gave the Pallonji Mistry group a 9.9 per cent stake in the company. The Mistry group holds about 40 per cent of FGL now.