In some good news for small investors and bad news for companies that disregard the small guys' concerns, a significant portion of public shareholders have voted against a restructuring proposal by Elecon Engineering ltd.
In a recent meeting to approve the restructuring in Elecon Engineering Limited (Elecon) 18.4% of the equity shareholders, by value, voted against the scheme of arrangement. This is more than the 14.84% that domestic institutions and FII's hold in the company, as on 30 June 2012. Proxy advisory firm IiAS had asked investors to vote against the proposed scheme.
The move comes weeks after Naveen Jindal led Jindal Steel & Power saw significant amount of Institutional votes going against a resolution to authorize the chairman to revise pay packages of top executives.
Recently Elecon announced it would be restructuring the businesses of its promoter companies Prayas Engineering Limited (Prayas), EMTICI Engineering Limited (EMTICI), with its wholly owned subsidiary Elecon EPC Projects Ltd (Elecon EPC) and itself. The stock corrected 5% the day Elecon's board approved the scheme of arrangement.
Before the restructuring, the promoters held 45.99% in Elecon Engineering Co Ltd and Elecon EPC was a wholly owned subsidiary of Elecon Engineering Co Ltd. However, post the restructuring the power transmission business (PT) of Prayas and EMTICI would be transferred to Elecon while the material handling equipment business (MHE) of Elecon, Prayas and EMTICI would be transferred to Elecon EPC. This restructuring of businesses would help the promoter's increase their shareholding in both the MHE business and PT business (- in Elecon EPC it increases from 45.99% to 72.15%, and in Elecon it increases from 45.99% to 53.96%). The move would also give majority control of over 50 % to the promoters in the decision making process of both companies.
Further, post the merger, the MHE business's (now Elecon EPC) revenue and profit margins will be higher than the PT business. Post restructuring, the MHE business is expected to have PBT margin of 12.7% v/s 7.4% for the PT business. IiAS notes that the promoters shareholding in MHE also increases disproportionately relative to PT business. The debt to EBIDTA ratio of the MHE business would stand at 2x vis-a-vis 2.4x for the PT business Institutional Investor Advisory Services (IiAS), a proxy advisory firm, recommended voting against the scheme of arrangement.
