Shed more light, proxy advisory firms tell Wipro

Ask shareholders to seek more clarity on demerger, say management should spell out vision company says deal adheres to highest standards, all details shared

Proxy advisory firms have turned the heat on Wipro, which announced a demerger scheme last week.

Stakeholders Empow-erment Services (SES), promoted by J N Gupta, earlier with the Securities and Exchange Board of India, has asked Wipro shareholders to seek listing of the consumer goods business the company proposes to demerge. Said its note: “Shareholders should urge the board and the management to reconsider the demerger scheme and list the demerged entity, enabling investors to realise its fair price in the market. SES believes the stated objectives of demerger could still be met if the demerged entity were to be a listed company, unless the objective itself is to create an unlisted company.”

The note added, keeping in view the high standards of governance, transparency and fairness for all stakeholders for which Wipro is known, it urged the shareholders to ask for valuation details and division of tangible and intangible assets between the two and why the Wipro brand will be shared equally when neither the assets nor turnover or profits are equal.
 

OPTIONS FOR INVESTORS
Wipro's non-IT businesses to be demerged in to Wipro Enterprises (WEL)

WEL would be unlisted 
Three options for Wipro shareholders:

1. Receive one equity share in WEL for every five equity shares of Wipro; 
2. Receive one 7% Redeemable Preference Share in WEL for every five equity shares of Wipro redeemable after one year
3. Exchange the equity shares of Wipro Enterprises Limited and receive as consideration equity shares of Wipro Limited held by the promoter. The exchange ratio will be one equity share in Wipro Limited for every 1.65 equity shares in Wipro Enterprises Limited. Proxy firms seek more clarity on the future of WEL

When contacted a Wipro spokesperson reiterated the management stand earlier that they are equally committed to both the businesses. “Whatever options were offered to the shareholders were by adhering to highest standards of governance,” he added.

SES also urged investors to ask the company what was the value assigned to the Wipro brand. “Additionally, SES would welcome it if the independent directors give their recommendation over the demerger proposal to shareholders (as is required in the case of takeovers),” the note added.

Institutional Investors Advisory Services (IiAS) said Wipro needed to throw more light on the proposed demerged entity and plans for its future. “Given that Wipro Enterprises will be unlisted, the management has not provided any basis to investors on whether they should bank the cash or hold on to unlisted equity,” went its critique. It said the management, including Chairman Azim Premji, should throw more light on Wipro Enterprises. In a report titled ‘Unstitching Wipro’, it raised several questions such as, “Is management thinking about divesting the lighting business and investing the proceeds in hydraulics and pneumatics? Or hiving-off toilet soaps to invest in lighting? Does the management have a focused strategy in place or will the ‘pursuit of independent growth plans’ suffice? Are they thinking of further splitting Wipro Enterprises and then list the various underlying businesses separately anytime soon?Azim Premji may not share the details but he has to share his vision with investors. In the absence of this, offering Wipro Enterprises shares is a hollow choice.”

The Wipro spokesperson said the company has already filed a demerger scheme along with a valuation report with the exchanges which gave all the necessary information to the shareholders.

According to IIAS, listing of Wipro Enterprises might not be the solution. It said: “While investors can weigh the deferred cash against Wipro’s shares, asking them to do so without any information on what are the management’s plans for Wipro Enterprises is unreasonable. Investors have the right to know more and Wipro has an obligation to provide answers. Only then can investors hope to take the right decision.”