CO/140/TO/08/2002
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF DELTA PAPER MILLS LIMITED
1.0 Mr. G.Ganga Raju, Mrs G. Laila, Mr G.V.K Ranga Raju, Mr. G.Rama Raju(hereinafter referred to as the "Acquirer") along with M/s Laila Finance Ltd., M/s Laila Credits (P) ltd.( hereinafter referred to as the "persons acting in concert") hold 70.32% shares (i.e,23,25,445 equity shares) of Delta Paper Mills Limited (hereinafter referred to as the "Target company"). The Acquirer alongwith persons acting in concert propose to acquire 19.01% shares(i.e, 6,28,500 equity shares) of the Target company from ICICI, IDBI, IFCI ( hereinafter referred to as "the Financial Institutions"), Canara Bank, Syndicate Bank (hereinafter referred to as "the Banks"). As a result of the proposed acquisition, the Acquirer will have to make an open offer to the public shareholders of the Target company in terms of sub regulation (1) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "Regulations").
1.1 The shares of the Target company are listed at the Hyderabad Stock Exchange.
2.0 The Acquirer made an application (in a specified format) dated July 13, 2002 under sub-regulation (2) of regulation 4 of Regulations to the Securities and Exchange Board of India (hereinafter referred to as SEBI) seeking exemption from making public offer and from compliance with the making of public announcement and other formalities under sub regulation (1) of regulation 11 of the Regulations.
3.0 In the aforesaid application, the Acquirer submitted, inter-alia, the following:
3.1 The Acquirer along with the persons acting in concert are presently holding 70.32% of total paid-up share capital of the company.3.2 The Acquirer proposes to acquire 19.01% shares of the Target company from the Financial Institutions and the Banks.3.3 The acquisition of 19.01% shares of the Target company from the Financial Institutions and the Banks has been proposed to be made at Rs.11/-.3.4 The Acquirer has sought exemption from making the public offer in terms of sub-regulation (1) of regulation 11 and from the procedure and other formalities to be followed in that regard on the following grounds:3.4.1 The shares of the Target company are infrequently traded.
3.4.2 The Target company has a very small shareholder base of 524 shareholders including Financial Institutions and the Banks representing public holding of 30.64%.
3.4.3 Out of 518 public shareholders 458 shareholders representing 10.80% are domiciled in the district in which the Registered office of the Target company is situated, leaving a mere 60 shareholders domiciled in other places.
3.4.4 No transfer requests have been received by the Target company subsequent to the promoters’ acquisition meaning that all of the public shareholders were also shareholders at the time of the acquisition.
3.4.5 There is no change in the public shareholder base since the promoters’ acquisition and the proposed acquisition of shares has arisen due to conditions prescribed by the Financial Institutions.
3.4.6 The acquisition of further shares would add more faith in shareholders’ minds and it would in no way reduce the floating stock in the market as the acquisition is from Financial Institutions and Banks only.
3.4.7 The Acquirer will ensure individual mailing of letter of offer and compliance of the Regulations in true letter and spirit which will enable the Acquirer to substantially save in terms of cost.
4.0 The said application dated July 13, 2002 was forwarded to the Takeover Panel on July 17, 2002 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated July 25, 2002 has recommended, inter alia, as under:
"In the facts and circumstances stated in the application, exemption from making public offer as sought is not recommended. However, grant of the following is recommended :
- Appointment of Merchant Bankers & Registrar need not be made;
- Publication of Advertisement as required under the Takeover Code need not be made;
- Addressing of individual letters of offer to each public shareholder offering to buy the shares at the price of Rs.11/- per share and sending such letters to each public shareholder at the recorded address by registered acknowledgement due post;
- Submitting of Certificate of auditor / independent Chartered Accountant to the effect that all applicable Regulations of the Takeover Code have been complied with and that the letters of offer were posted to each public shareholder as required above;
- Acceptance of valid offers after a period of 30 days but not later than 45 days and to make payment thereof;
- Opening of the ESCROW account as required by the Takeover Code;
- Submission of 60 days report duly certified by auditor / independent Chartered Accountant."
5.0 I have taken into consideration the application dated 12.7.2002, the facts and documents available on record and also the recommendations of Takeover Panel.5.1 It is observed that the shares of Target company are infrequently traded, in fact, the shares of Target company have not traded since 1987. The book value per share is Rs.10.07/- as on 31.3.2002 as per the unaudited results.
5.2 The acquisition price offered by the Acquirer to the Financial Institutions and the Banks for acquisition of shares of Target company is Rs.11/-. The offer price of Rs.11/- is in terms of sub-regulation (3) of regulation 20 of the Regulations which appears to be justified based on the submissions of the Acquirers.
5.3 It is observed that the public shareholding in the Target company is very small i.e. 10.68%. The aforesaid 10.68% shareholding is held by 518 shareholders, excluding the Financial Institutions and the Banks.
5.4 It is also observed that out of 518 public shareholders 458 shareholders representing a large percentage of public shareholding are domiciled in West Godavari, district in which the registered office of the Target company is situate, leaving only 60 shareholders domiciled in other places.
5.5 I find that the acquisition which is triggering the Regulations is the purchase by the Acquirer of 6,28,500 (19.01%) shares from the Financial Institutions and the Banks. The acquisition from the Financial Institutions has arisen from a condition laid down in the One Time Settlement reached with the Financial Institutions at the time of acquisition of control of the Target company, in 1998 by the Acquirer through an open offer in terms of the Regulations.
5.6 I find that there will be no change in control of the Target company by virtue of the acquisition of shares by the Acquirer from Financial Institutions and the Banks, since the Acquirer is only consolidating its shareholding in the Target company.
5.7 I find that the shares of the Target company have not been traded since 1987 and there is no other exit opportunity for the shareholders
5.8 I find that as a result of non trading in the shares of the Target company, there may not be any change in the public shareholding and hence, the process of sending individual letters to the public shareholders will be appropriate.
5.9 I have noted that as per the recommendation of the Panel vide its Report dated July 25, 2002 the Panel has proposed that the exemption from appointment of Merchant Bankers & Registrar and publication of Advertisement may be granted to the Acquirer for the acquisition of 6,28,500 (19.01%) shares from the Financial Institutions and the Banks subject to-
- addressing of individual letters of offer to each public shareholder offering to buy the shares at the price of Rs.11/- per share and sending such letters to each public shareholder at the recorded address by registered acknowledgement due post;
- submitting of Certificate of auditor / independent Chartered Accountant to the effect that all applicable Regulations of the Takeover Code have been complied with and that the letters of offer were posted to each public shareholder as required above;
- acceptance of valid offers after a period of 30 days but not later than 45 days and to make payment thereof;
- opening of the ESCROW account as required by the Takeover Code;
- submission of 60 days report duly certified by auditor / independent Chartered Accountant .
6.0 Taking into consideration the above, the recommendations of the Takeover Panel and the interest of the public shareholders of the Target company, in exercise of the powers conferred upon me under sub section (3) of Section 4 of the Securities and Exchange Board of India Act 1992 read with sub regulation (6) of regulation 4 of the Regulations for the reasons recorded hereinabove, I hereby grant exemption to the Acquirer from complying with the following provisions as contained in Chapter III of the Regulations with regard to the proposed open offer to be made to the public shareholders of the Target company for acquisition of 3,53,055 shares representing 10.68% in terms of sub-regulation (1) of regulation 11 of the Regulations-
- Appointment of SEBI registered Merchant Banker (regulation 13),
- Issuance of Public Announcement and submission of draft letter of offer (regulations 14, 15, 16 and 18).
6.1 I also direct that the aforesaid exemption shall be available subject only to addressing of individual letters of offer to each public shareholder of the Target company, offering to buy the shares at the price of Rs.11/- per share. Such letters shall be sent by the Acquirer to each public shareholder at the last recorded address by "registered acknowledgement due" post.
6.2 The Acquirer is also directed that :-