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Have FIIs let down domestic shareholders of Ambuja? This certainly seems to be the case if we look at the way they have voted en masse in favour of the Ambuja- Holcim deal.
A total of 359 foreign investors voted en masse in favour of buying 24% stake Holcim India which reports say became possible due to strong recommendations from advisory firms like Glass Lewis and ISS. Domestic institutions on the other hand have voted against the deal unanimously.
This is one of those rare incidents where institutional votes have been split and role of independent advisory agencies have been brought to the fore.
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From an outsider point of view, the deal was clearly one-sided in favour of Holcim. The Swiss giant was taking away Rs 3,500 crore from Ambuja and selling its stake in a wholly owned subsidiary which holds 50.1% stake of ACC in return, apart from the 58.4 crore shares of Ambuja.
For ACC shareholders, its stake was sold at a valuation of only Rs 15,000 crore when the market value was Rs 23,000 crore. On the other hand, Holcim has said that Ambuja will be increasing its stake by 10% using Rs 3,000 crore, thereby giving it a valuation of Rs 30,000 crore.
As per the new SEBI norms on mergers and acquisitions, listed entities need the support of minority shareholders for the deal to go through. Holcim, which is the promoter of both ACC and Ambuja has around the same promoter holding in both the companies at 50.3% and 50.1% respectively. In order to see the deal through, it needed the trust of a big chunk of shareholders who could voted en masse. In this case it was the FIIs.
FIIs holds 30% in Ambuja while their holding in ACC was only 20%. Thus when it came to minority voting almost 60% of votes (30% of the free hold) in Ambuja from FIIs would take the deal through. Holcim thus found it easier to make Ambuja the scapegoat as it was confident of getting the FIIs on its side.
Unlike previous deals where management have tried to take away money or where there was a case of wrongdoing like in Satyam, institutions have stood together in opposing the management. This time however, there was a clear divide between Indian institutions and foreign institutions. Because of their large holding (30% of the total equity) foreign institution have favoured the move.
FIIs can make up from their loss in India by buying the shares of the parent company, which is the main beneficiary of the deal, in the Swiss exchange it is listed on. Domestic institutions do not have that luxury.
It is not the first time Holcim has tried to take money out of the company. Earlier its move of charging higher royalty was scuttled by minority shareholders. But this time around they were clearly outnumbered.
A question that lingers in the mind however, is do we need such FIIs who place their own interest over that of the company.
