Crompton plans a relief for minority investors

After demerger, consumer products unit shareholding to mirror parent's structure

Crompton Greaves on Thursday decided to hive off its consumer products division, reversing a decision to retain 25 per cent stake in the proposed subsidiary.

The board approved the plan at a meeting on Thursday.  Crompton said the revision came in the wake of feedback from investors, Securities and Exchange Board of India (Sebi), and the BSE.

“The shareholding pattern of the resulting consumer company shall mirror Crompton’s.  A scheme of arrangement incorporating the above principles will soon be considered by the board,” the company said in a filing to the BSE.

The board had approved the demerger in October. The consumer products division makes lighting appliances and fans, accounts for 21 per cent of the company’s revenues and accounted for half of the profit before interest and taxes in 2013-14.

Crompton Greaves had said the demerger would create value for all old shareholders and enable the management to focus and expand its business segments. It has been seeking investment from private-equity investors in the division. In the original plan, investors would have received three new shares in the consumer products subsidiary for every four shares held in the parent.

The management had proposed carving out 25 per cent stake in the subsidiary for the parent, while the rest were to be issued to promoters (Avantha Group) and other public shareholders. The original plan was to complete the demerger by March.

But proxy advisory firms and a few broking firms had raised concern over the proposed shareholding structure, terming it unfair to minority shareholders.

In its letter to Crompton Greaves earlier this month, the BSE, quoting Sebi, said voting rights of minority shareholders might be hit in the proposed subsidiary, since the shareholding was did not mirror that in the parent. Crompton Greaves was also advised by the exchange to seek a vote from a majority of the minority shareholders on the proposal, as required by Sebi.

“Today’s decision to demerge 100 per cent will create a cleaner and neater shareholding structure and will be equitable to all shareholders. I am surprised the company did not consider this earlier. My feeling is minority shareholders would have voted against the proposal, as the earlier proposal was unfair,” said Amit Tandon, managing director of proxy advisory firm Institutional Investor Advisory Services.