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The five-year-old dispute between minority shareholders and Cadbury India (now Mondelez India Foods) over the price at which the latter will have to buy back shares of the former as part of its delisting procedure, is far from over.
Minority shareholders are gearing up to appeal against the Bombay High Court order dated May 9, which directed Cadbury to cough up Rs 2,014.50 a share, instead of Rs 1,743 apiece as arrived at by independent valuer EY in its first valuation report dated May 28, 2010.
Following objections to its first valuation, EY had tabled a second report in 2011, setting the buyback price at Rs 2,014.50 a piece, which was accepted by the Bombay High Court in its recent order. The May 9 order was uploaded to the Bombay High Court website only on Thursday.
In the order, Justice G S Patel said: “It is impossible, on any fair reading of the two EY reports, to conclude that there is anything in either of them that is so egregious that it would undoubtedly result in a manifestly skewed, distorted and depressed valuation.”
However, sources said Rs 2,014.50 is not a fair price because the assumptions on which the valuation was based was not shared with the minority shareholders. Moreover, it was far lower than the Rs 2,500 apiece that they were demanding, which they felt was a fair price for them to tender their shares. This case is critical because if the minority shareholders manage to get what they want, then it would mark a new chapter in shareholder activism in the country. So far, no court of law in India has ruled in favour of minority shareholders when they took the legal route to decide the valuation price in case of buybacks, according to proxy advisory firms.
Shriram Subramanian, founder and managing director of proxy advisory firm InGovern Research Services, says, “The valuation price is something that has to be acceptable to both parties. The ideal situation would be to have a negotiated settlement where the two parties sit down and agree on who the valuer should be, the inputs to be included in the valuation process and the valuation price itself. It has to be transparent and fair.”
Alok Churiwala, the main petitioner in the case along with Malati Samant, said he would take a decision after consulting his lawyers and other shareholders. When contacted, he said: “We are studying the court order and will take a decision after going through it.”
Ajay Samant, the advocate representing the above-mentioned shareholders, could not be immediately reached for comments.
However, legal experts say the minority shareholders could approach the Supreme Court or file an appeal before the division bench of the Bombay High Court seeking a stay on the matter.
“This is a race against time for the minority shareholders and the game plan will be to see how quickly can they get a stay on the matter,” said a city-based corporate lawyer, while declining to be named given the sensitivity of the issue.
A Mondelez India Foods spokesperson said: “We are delighted that the High Court of Bombay has passed the final order in the petition filed by Cadbury India Limited (now Mondelez India Foods Limited) for reduction of share capital and the petition has now been made absolute. We will now proceed to comply with the necessary requirements under law for implementing this order.”
DISCORDANT NOTES
- Independent valuer EY in its first valuation report dated May 28, 2010 arrives at a price of Rs 1,743 apiece
- Following objections, EY tables a second report in 2011 raising the price to Rs 2,014.50 a piece
- Bombay HC accepts this price and passes an order on May 9 asking Cadbury to pay Rs 2,014.50 a share for the buyback
- Minority shareholders say this not a fair price because the assumptions on which the valuation is based have not been shared with them
