The family plans to block the proposed Rs 35-cr rights issue.
The proposed rights issue by global private equity giant Actis is expected to run into trouble as all family shareholders of the century-old retail firm Nilgiri’s are set to move the Company Law Board (CLB) in an effort to block the issue. This step is the latest and the most severe one being planned by the promoters in the growing rift with the UK-based Actis during the past three years.
Actis had picked up a 65 per cent stake in The Nilgiri Dairy Farm by investing Rs 300 crore in the back-end operations of the retail chain in 2006. But, according to sources, the family promoters and Actis hardly see eye-to-eye on how the retail chain is managed and its expansion planned.
“We plan to block the proposed Rs 35-crore rights issue by challenging it at the CLB,” a senior source in the Nilgiri family told Business Standard. However, a family spokesperson declined to comment on the issue.
In November 2009, the Actis-led management got a board approval for a Rs 35-crore rights issue to fund expansion. It is going ahead with the issue despite stiff resistance from the Nilgiri family, whose members have termed the move as illegal, stating that it was never a part of the agenda.
“Rights issues do not get tabled at board meetings without any discussion on valuation. We did not have any choice but to move the CLB,” the source said.
The move to approach the CLB follows the Actis-led management’s decision to retain and invest close to Rs 100 crore in operations of the company, after it sold three hospitality properties belonging to the Nilgiris.
Nilgiri’s CEO Vikram Seth, in a recent mail to franchisees of the firm, said: “It is true that some of the family members have made a request that the property sales’ proceeds be paid out as dividend. However, the company’s expansion plans, drawn up and approved by the board more than a year ago, had planned the sale of non-core property assets with the clear intention of retaining the proceeds for business expansion rather than pay out as dividend to shareholders. The legal position is that the board has the right to decide to retain these funds in the business, and it has chosen to do so.”
However, a family member said the sharing of the property proceeds was agreed upon.
The statement by the Nilgiri’s CEO has made the family shareholders unhappy on how they are being treated and the CLB is only the latest salvo by them in the dispute. The family has also claimed that the company is being mismanaged, adding that the top line of the firm has dropped and losses are widening ever since Actis gained control.
Seth, justifying the decision to retain the sale proceeds, further added: “It is true that, while the family group has 33 per cent shareholding, if the property sale proceeds were to be paid out as a dividend they would be entitled to only a 15 per cent share as per the shareholders’ agreement. So, if this money is retained in the business, the family gets a 33 per cent beneficial share, (i.e.) more than twice what they would get as against the 15 per cent share paid as dividend.”
Family sources also question whether a professional CEO can intervene in an issue between shareholders.
