Will give premium over E&Y’s recommended price.
Cadbury India, fighting a prolonged battle with its minority shareholders, is now willing to consider a premium over the Rs 1,743 per share price recommended by Ernst & Young (E&Y) for the chocolate maker’s buyback offer. Earlier, it had said it would give no such premium.
This was confirmed by minority shareholders fighting a case against the company in the high court here. The matter was heard on Friday, with the next hearing likely on January 14.
Some shareholders are likely to accept a 20 per cent premium over the E&Y-recommended price, or Rs 2,091.60 per share, for giving theirs up.
However, another group of minority shareholders, represented by the Investors’ Grievances Forum (IGF), may press for more. “Minority shareholders have informed us that they are not willing to accept anything below Rs 2,500-3,000 per share,” said Hinesh Doshi, vice-president of the IGF, a Securities and Exchange Board of India -recognised investors’ association.
Long tussle
The battle between Cadbury and its shareholders began in early 2006, when the company delisted from the Indian stock exchanges, at Rs 500 a share. Subsequently, it made four buyback offers, at Rs 750, 815, 980 and, then, Rs 1,030 a share.
Yet, a little over 8,000 shareholders holding 2.42 per cent of the equity — the other 97.58 per cent is with the UK-based parent company — declined. The parent company was Cadbury Plc, bought by US-based Kraft Foods last year for $19.6 billion. So, in November 2009, Cadbury India passed a special resolution for reduction of share capital of only the public shareholders, at Rs 1,340 a share.
Such a resolution, for compulsory buyback, can be passed if there’s a 90 per cent majority. In which case, the minority sghareholders can only dispute the price. Which they did, going to the HC. The court apponted E&Y as the arbitrator, to make an independent evaluation.
E&Y had, in its valuation report to the HC, said a special premium may be required over the Rs 1,743 a share price recommended by the accounting firm. However, it had not considered any premium in its valuation analysis. An e-mail query to a Kraft spokesperson remained unanswered.
Cadbury India had rejected the premium demand over the E&Y calculation, citing additional cost in terms of dividend distribution tax (DDT) on the buyback price. By the rule, Cadbury India will have to pay 16.61 per cent tax (DDT plus surcharge and education cess) on the price at which shares would be bought from minority shareholders.
Minority shareholders have been demanding that as it is a compulsory buyback from the company, a premium is justified. A valuation report from JC Desai & Company, presented by these minority shareholders in court, had recommended a 20 per cent premium to the Rs 1,979 a share base value arrived by the firm.
