WTM/GA/119/SAST/1/07
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF EQUITY SHARES OF REVATHI EQUIPMENT LTD.– EXEMPTION APPLICATION FILED UNDER REGULATION 4(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997.
1.0 BACKGROUND -
1.1 M/s Revathi Equipment Ltd. (hereinafter referred to as ‘the target company’) was incorporated as Revathi Equipment Pvt. Ltd. on May 30, 1977 and was subsequently renamed as Revathi Equipment Ltd. with effect from July 11, 2001. The target company is a company incorporated under the Companies Act, 1956, having its registered office at Pollachi Road, Malumachampati Post, Coimbatore 641 021. The equity shares of the target company are listed on the National Stock Exchange of India Ltd. (NSE),The Bombay Stock Exchange Ltd. (BSE), The Coimbatore Stock Exchange Ltd. (CoSE) and The Madras Stock Exchange Ltd.
1.2 Utkal Investments Ltd. and Renaissance Asset Management Company Pvt. Ltd. (hereinafter referred to as ‘the acquirers’) are the promoters of the target company and are holding 60.87% of the equity shares of the target company.
2.0 APPLICATION FOR EXEMPTION -
2.1 The target company has announced its plan to buy-back its equity shares from the shareholders at a price not exceeding Rs 700 per share in terms of the provisions of section 77A, 77AA of the Companies Act 1956 and the provisions of the Securities and Exchange Board of India (Buy – Back of Securities) Regulations, 1998. Due to the said buy-back offer, the voting rights of the acquirers would increase from 60.87% to 63.71%, in case of 100% response to the said buy-back offer and the acquires not offering to sell any shares held by them in the proposed buy-back offer of the target company.
2.2 The acquirers vide letter dated September 8, 2006, filed an application with the Securities and Exchange Board of India (SEBI) under regulation 4(2) read with regulation 3(1) (l) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations,1997, (hereinafter referred to as the ‘Takeover Regulations’). Since, the post buy-back shareholding of acquirers may increase to a level beyond 55%, the exemption is sought from the applicability of regulation 11(2) of the Takeover Regulations, inter alia on the following grounds:-
a) The acquirers are the promoters of the target company and hold 60.87% of the share capital of the target company. The acquirers are in control over the target company.
b) Increase in voting rights of the acquirers is incidental to the buy-back proposal of the target company and is not an active acquisition. Even after buy-back of the equity shares by the target company (incase of 100% response), the public share holding in the target company would be at a level more than which require for meeting the requirements of the listing agreements.
c) The price at which the buy-back is proposed is Rs. 700/- and is higher than the book value of Rs.312.07 per share (maximum cap).
d) The buy back is being proposed by Revathi Equipment Ltd. to maximize returns to investors and enhance overall shareholder value by returning surplus cash to the shareholders in an investor friendly manner.
e) Revathi Equipment Ltd. has accumulated free reserves and satisfactory liquidity. The proposed buy back is expected to lead to reduction of outstanding equity shares, which may lead to increase in earnings per share and return on equity of the Revathi in future, thereby creating long term shareholder value for the continuing shareholders.
f) The acquirers do not propose to acquire a single share of the target company either directly or indirectly.
g) There would not be any change in control over the target company pursuant to the increase in the shareholding of the acquirers.
2.3 The shareholding pattern of the target company before and after the proposed acquisition is as under:
|
Shareholders’ category
|
Number of registered shareholders as on date of application
|
Shareholding
Before the proposed acquisition
|
Shareholding
After the proposed acquisition
|
|
|
|
Number of shares / total voting rights held
|
% of shares / total voting capital held
|
Number of shares / voting rights
|
% of shares / voting rights
|
|
Promoter group /
Acquirers
|
2
|
19,53,809
|
60,87
|
1953809
|
63.71
|
|
FIs/Banks
|
5
|
1,12,820
|
3.515
|
113134
|
36.29
|
|
FIIs/NRIs/OCBs
|
123
|
30,261
|
0.943
|
|
Public
|
6081
|
11,12,910
|
34,672
|
|
Total
|
6211
|
32,09,800
|
100.00
|
3066943
|
100
|
3.0 RECOMMENDATION OF THE TAKEOVER PANEL –
3.1 The aforesaid application dated September 4, 2006 was forwarded by SEBI to the Takeover Panel in terms of sub-regulation (4) of Regulation 4 of the Takeover Regulations. The Takeover Panel vide its report dated October 5, 2006 has observed that “It is also worth pointing out at this stage that in buy back there is increase in voting rights and / or equity shares and the result is the same as that of acquisition. Such acquisition which may said to be passive acquisition is covered by the definition acquisition ….. It is clearly explained in the application that in the present case the promoters are not allotwed to participate in the existing system by the stock exchange. The buy back would result in the increase in the Promoter’s holding (voting rights proportionately). The buy back has been authorized by the Board of Directors and increase in voting rights is only instrumental to the proposed buy back. The panel having considered all the aspects of the matter came to the conclusion by majority that this is a fit case for grant of exemption as proposed for”.
4.0 FINDINGS -
4.1 I have carefully considered the application dated September 4 2006 filed by the acquirers, the above mentioned recommendations of the Takeover Panel and relevant materials available on record.
4.2 At the outset I note that the increase in shareholding of the acquirers is incidental to the buy back plan of the target company. I observe that the acquirers are not acquiring any shares of the target company directly or indirectly in the said buy back offer made by the target company. I note that the acquirers in their application have undertaken that they will not offer any shares in the said buy-back. I also note that there would not be any change in control as the acquirers are the promoters of the target company and have control over the target company. I also note that even in case of 100% response in the proposed buy-back offer and successful completion of the said buy-back, the public share holding in the target company would be at a level more than what is required for meeting the requirements of the listing agreements with the stock exchanges where the shares of the target company are listed.
4.3 In view of the above facts and circumstances, I agree with the recommendations of the Takeover Panel and consider the present case as a fit case for granting exemption from making a public announcement as required under regulation 11(2) of the Takeover Regulations.
5.0 ORDER -
5.1 In view of the above findings, I , in exercise of the powers conferred upon me by virtue of section 19 of the Securities and Exchange Board of India Act, 1992 read with sub - regulation (6) of regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, hereby grant exemption to the acquirers, namely, Utkal Investments Ltd. and Renaissance Asset Management Company Pvt. Ltd. from complying with the provisions of regulation 11(2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 with regard to the increase in their voting rights from 60.87% to 63.71%, consequent to the proposed buy-back offer of Revathi Equipment Ltd., the target company.
G. ANANTHARAMAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA
Place: Mumbai
Dated: 05.01.07