 "Vote against Pantaloon's fashion biz demerger: InGovern")
Last year, Pantaloon had announced the demerger of the fashion business of Pantaloon and FVIL into FLFL to simplify business structure and unlock value for shareholders in different verticals. A court convened meeting will be held on March 4 between FVIL and its subsidiaries —Indus League Clothing and Lee Cooper — Pantaloon, FLFL and their respective shareholders, and creditors.
According to the plan, shareholders of Pantaloon and FVIL would receive shares in FLFL, which would seek automatic listing of its shares after the demerger. According to share swap ratio, holders of every three equity shares or shares with differential voting rights (DVR) of Pantaloon, would get one equity share in FLFL. Those with 31 equity shares in FVIL would get one FLFL share.
InGovern has asked Pantaloon shareholders to vote against the resolution for three reasons. First, it said that voting rights of public shareholders of Pantaloon and FVIL would get diluted because after the demerger, Pantaloon and group entities will have 51.43 per cent holding in the new entity.
“The scheme has been structured through a partial demerger resulting in PRIL holding 19.79 per cent in the resulting entity (FLFL) and other promoter group entities holding 31.64 per cent, indirectly giving them majority voting control in FLFL,” InGovern said.
The partial demerger would result in public shareholders of PRIL and FVIL losing direct voting interests in the fashion business (FLFL), it said.
“The scheme should have been structured as a full demerger with minority shareholders getting proportionate shareholding in FLFL business corresponding to their current shareholding in Pantaloon and FVIL,” it said.
However, a Pantaloon spokesperson countered this argument saying that even promoters’s interests in new entity will get diluted. “Since shares are being allotted to shareholders of both Pantaloon and FVIL, the same could not be in same proportionate holding as in the respective demerging companies. In addition to other shareholders, even promoters are receiving diluted interest in the resultant entity. In fact, promoters’ shareholding in FLFL will be at 31.64 per cent, which is lower than that in Pantaloon (44.19 per cent) and FVIL (38.25 per cent),” the spokesperson said.
Secondly, InGovern said that although DVR shares carry voting rights equal to three-fourth of Pantaloon equity shares and trade at substantial discount to Pantaloon shares, both equity share holders and DVR holders would get the same swap ratio. This implies that both will get equal price consideration and voting rights in FLFL.
However, Pantaloon spokesperson said that there was no difference in rights of Pantaloon’s normal shareholders and DVR shareholders, as both of them are equity shareholders holding similar economic interest in the assets of the company. “Both normal equity shares and DVR shares have the same face value of Rs 2. Accordingly, it is fair to allot shares of FLFL to existing normal shareholders and DVR shareholders in the same ratio,” said the spokesperson.
InGovern said that the company had not issued disclosures about the scheme-related documents such as valuation reports, audit committee reports and so on. According to a Sebi circular dated February 4, listed companies seeking listing post a scheme of arrangement are required to publicly disclose all scheme related documents on their website, added InGovern.
To this, the company spokesperson said that the recent Sebi circular is applicable to those schemes that have not been approved by stock exchanges and for which no filing had been made in court.
“Since this scheme was admitted in the court before the date of issuance of above referred circular, it will be governed by rules and regulations as applicable prior to this circular. Company has complied with applicable regulations and the documents mentioned above are available in the public domain for shareholders,” said the spokesperson.
Finally, InGovern said that the frequent business realignments were a key cause of concern for minority shareholders and the company has not provided long-term rationale and commercial benefits of frequent restructuring.
“Most of these intra group realignments are done without adequate disclosures on valuation considerations or disclosure on minority shareholder impact. No explanation is provided on the long-term rationale and commercial benefits of such realignment exercise,” it said.
The company’s board should take an active effort to clearly communicate its long term vision and commercial focus for the next 5-10 years and provide more stability in the minds of investors regarding its long term prospects, it said.