Fulford’s parent Dashtag rethinks delisting, stock falls by 20%

Fulford (India)’s parent Dashtag, a subsidiary of Merck & Co.  has postponed its delisting plans, a decision it has attributed to a sharp rise in Fulford’s share. But a reference to Sebi’s decision to amend the delisting regulations indicates some influence from that side as well. Shareholders reacted with dismay, sending the stock down by 20%on Tuesday to Rs 1,417.3–locked at the lower end of the circuit filter.

Dashtag informed Fulford in a letter that it has received all approvals needed for it to make an open offer. The company had announced in April 2014 its intention to delist Fulford, and fixed the floor price of Rs 701.71 per share and an indicative price of Rs 1150 per share. But this indicative price is not binding on shareholders, as the actual delisting price is to be discovered through a reverse book-building process.

Now, Fulford’s price had begun to increase after its delisting plans became known and had risen to as high as Rs 2112 a share on 25 November, or just a couple of hundred rupees short of double of what Dashtag was willing to pay. It holds a 74.95% stake in Fulford at present, just below the maximum promoter holding of 75%.

Dashtag had earlier expressed its discomfort with the share movement in June 2014 and had said the share does not reflect business fundamentals. It said it practices stringent financial discipline in its acquisitions. What this sought to convey was that it will not exit at any price. But the markets did not really pay heed to this. It fell briefly but shortly resumed its upward march.

Now, Dashtag has said that it has received approvals needed for going ahead with its offer, but since it does not intend to pay more than its indicative price, it will not go ahead with the offer. That may invite scrutiny from the regulator, as the correct thing to do would have been to go ahead with the offer, and once the discovered price was known, either accept it or reject it.

But the company has said that it will wait for ‘market conditions to align with the financial expectations of the acquirer’ or put simply wait for the price to fall below Rs 1150. In the next point, Dashtag also talks about acknowledging proposed changes to the delisting regulations.

In its recent board meeting, in November, Sebi had approved changes to the delisting regulations. The key changes announced in the press release include: the acquirer’s share in the company to exceed 90% and at least 25% of public shareholders should surrender their shares. The relevant portion from the Sebi press release is reproduced here.

“(III) Amendment to SEBI (Delisting of Equity Shares) Regulations, 2009

As a part of SEBI’s constant endeavour to review the existing regulatory framework to align with the changing market realities, the following changes to SEBI (Delisting of Equity Shares) Regulations, 2009 have been approved:

(i)         The delisting shall be considered successful only when (A) the shareholding of the acquirer together with the shares tendered by public shareholders reaches 90% of the total share capital  of the company and (B) if atleast 25% of the number of public shareholders, holding shares in dematerialised  mode as on the date of the Board meeting which approves the delisting proposal,  tender in the reverse book building process.

(ii)        The offer price determined through Reverse  Book Building  shall be the price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.

(iii)       The promoter/ promoter  group shall be prohibited from making a delisting offer if any entity belonging to the said group has sold shares of the company during a period of six months prior to the date of the Board meeting which approves the delisting proposal.

(iv)       Use of Stock Exchange platform for offers made under Delisting, Buy Back and Takeover Regulations.

(v)        The Board of the company shall approve the proposal for delisting only after satisfying itself that delisting is in the interest of shareholders and that the company is in compliance with applicable securities laws.  The Board of the company shall appoint a Merchant Banker on behalf of the company and the promoter for the said purpose and for compliance with the Delisting Regulations.

(vi)       Companies whose paid up capital does not exceed Rs.10 crores and net worth does not exceed Rs.25 crores as on the last day of the previous financial year  are exempted from following the Reverse Book Building process. The exemption would be available only if  (a) there was no trading in the shares of the company in the last one year from the date of the board resolution authorizing the company to go for delisting and (b) trading of shares of the company has not been suspended for any non-compliance during the same period.

(vii)      Timelines for completing the delisting process has been reduced from 137 calendar days (approx 117 working days) to 76 working days.

(viii)     Option to the acquirer to delist the shares of the company directly through Delisting  Regulations pursuant to triggering Takeover Regulations has been provided.  However, if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the Takeover Regulations and pay interest @ 10% p.a. for the delayed open offer.

(ix)       SEBI may, for reasons recorded in writing, relax the strict enforcement of any requirement of the provisions of the Delisting Regulations or exempt from compliance, in line with the provisions existing in ICDR and Takeover Regulations.”

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