In what is seen by minority investors as an indirect way of giving them the boot, Micro Inks, a part of Germany-based Huber Group, is seeking shareholder approval for consolidating every 1,000 outstanding equity shares into one.
According to a shareholder notice for postal ballot, the result of which will be announced on May 2, 2012, the company plans to consolidate 1,000 equity shares of face value Rs 10 each into one equity share having face value Rs 10,000. Post-consolidation, one share of the company, at the delisting offer price of Rs 640, will be worth Rs 6.4 lakh.
“Small shareholders holding shares worth less than Rs 6.4 lakh will be forced to exit. They are trying to present the move as an exit option for investors. But I don’t want an exit, I didn’t ask for it,” said Arun Kejriwal, director, Kejriwal Research and Investment Services, who holds Micro Inks shares.
| HOLDING ON AGAINST ODDS Shareholder pattern of Micro Ink | |
| Shareholders | No of shares held |
| MHM Holding GmbH | 24,329,774 |
| Bilakhia Holdings | 100,000 |
| Directors | 110 |
| Public | 442,177 |
| Source: Company; As on Feb 24, 2012; Each share of face value Rs 10 each | |
According to the notice, fractional shares held by small investors will be transferred to a trust. The company secretary at Micro Ink said, “The money will be given to shareholders who hold fractional shares after the trust sells the shares. The selling price for the shares will be computed as per regulations.”
The company said the consolidation is being done “to attain twin objectives of reducing cost on long-term basis for the company and providing an exit opportunity to the members”.
The Gujarat-based printing ink company delisted from the stock exchanges in April 2010. But, the public still holds over 442,177 shares. These investors did not participate in the delisting offer and opted to continue as shareholders of Micro Ink.
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“Many members of the company, who could not participate in the exit offer, have been approaching the company and requesting for an exit opportunity. Since the equity shares are now not trading in the stock exchanges, it is difficult for such members to find buyers for their holdings,” Micro Ink said in the notice announcing consolidation of shares.
Public shareholders of the company, like Kejriwal, believe Micro Ink is trying to get rid of small shareholders through back-door tactics.
“Company law is clear that if someone wants to continue they should not be forced to sell,” he said.
Micro Ink wants fewer public shareholders as it says “the cost involved in handling and serving the members is very high, more particularly when their holding is very small”.
The trust so formed will offer and sell the fractional shares, first to the existing members, who desire to purchase the balance fractional portion to make the entitlement ratio of multiples of 1,000 shares.
In the event of demand for shares from existing members exceeding the availability of shares in fractions with the trust, a draw of lots will settle the issue, the notice says.
There have been instances of ownership regulations changing and multi national companies wishing to acquire the remaining equity, but doing so at a valuation that disadvantages minority shareholders with suspicious declines in profitability in the quarters running up to the sell-off, broking firm Espirito Santo Securities said in a recent report.
The report added, “There have been precedents where minority shareholders have been awarded relief when promoters have attempted to undertake corporate activity unfavourable to minority shareholders’ interests. One recent example is the case between a minority shareholder and CMI FPE.”