CNBC TV-18 has an interesting two part discussion on slump sales. They run through the three fundamental ideas I’ve had recently – Indo Asian Fusegear (sold chunk to Legrand), SmarkLink (sold 90% – they say – to Schneider) and Piramal Healthcare (sold approx 50% to Abbott).
The videos make important points.
1) Companies are not democracies in that minority shareholders will get an equal voice. Everyone gets a right as much as their shareholding allows them to. Slump sales are legal and should absolutely be allowed.
2) Buyers don’t want the crap associated with buying a company whole. Legal requirements, buyback formalities, time consuming efforts of getting some shares from a random fellow who absolutely refuses to sell. And then, having to conform to listing requirements till such process is done. So acquirers like slump sales.
3) Who are we, as external shareholders, to determine that 50% is okay or 90% is not okay? Like one of the guys said, if you have a molecule doing 90% of volumes today and it’s at the peak of the cycle, the promoter might want to sell it for fear of future competition, and use the money to develop other molecules. This 90% versus 50% versus 10% is a non-starter.
4) The problem is not the sale itself – or whether it could be done differently. The problem is what the promoter will do with the money, and that is unclear. The money should be safe. But in India it is not, and we know that. This is why holding companies in India get valued at a discount on our exchanges, and it can only be fixed by making the legal system better (so we can sue and get justice in court fast).