SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF PROPOSED ACQUISITION OF SHARES OF THIAGARAJAR MILLS LIMITED – EXEMPTION FROM MAKING OF PUBLIC ANNOUNCEMENT UNDER REGULATION 11(2) OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997
NO. : CO/247/TO/10/2002
1.0 Shri T. Kannan (hereinafter referred to as "the Acquirer") and Smt Uma Kannan, Ms Vishalakshmi, Ms Radha Kanan, K. Thiagarajan - Minor, Sri T. Kanan - HUF, Sri T. Kannan – Trustee Kannan Family Trust, Sri T. Kannan – Trustee, Miss Vishalakshi Kannan Marriage Trust, Sri T. Kannan – Trustee Selvi Radha Meenakshi Trust, M/s Thiagarajar Leasing Pvt Ltd, M/s Virudhunagar Textile Mills Ltd, Sri SK. AR.SM Ramanthan Chettiar (hereinafter collectively referred to as "persons acting in concert") propose to acquire 70,120 shares constituting 6.17% of the equity capital of Thiagarajar Mills Ltd (hereinafter referred to as "Target Company") from the public shareholders of the Target company at a price of Rs. 70/- per share. The Acquirer alongwith persons acting in concert collectively hold 93.83% shares in the Target company. In view of the same, to acquire the proposed shares, the Acquirer is under an obligation to make an open offer for such acquisition of shares to the remaining public shareholders of the Target company in terms of sub regulation (2) of regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as "the Regulations").
1.1 The shares of the Target company are listed at the Madras Stock Exchange and Coimbatore Stock Exchange.
2.0 The Acquirer made an application dated August 12, 2002 under sub-regulation (2) of regulation 4 of the Regulations to the Securities and Exchange Board of India (hereinafter referred to as SEBI) seeking exemption from compliance with a provision of making of public announcement and other formalities under sub regulation (2) of regulation 11 of the Regulations.
3.0 In the aforesaid application, the Acquirer inter- alia submitted as under :
3.1 The total number of shares of the Target company are 11,36,640 . Out of which the shareholding with public as on 31.3.02 is 70,120 shares constituting 6.17% of the total capital.
3.2 The Acquirer alongwith the persons acting in concert are holding 1066520 shares constituting 93.83% of the equity capital of the Target company.
3.3 Three shareholders whose aggregate holding is 56,540 shares out of the total holding of 70,120 have voluntarily offered to sell their holding at Rs. 70/- per share to the Acquirer due to which the public shareholding will be reduced to 13,580 shares i.e. 1.19% of the total paid up share capital of the Target company.
3.4 There are 31 shareholders under the "Public" category holding 13,580 shares in the Target company.
3.5 The Acquirer proposes to make the offer to acquire the balance number of shares i.e. 13,580 from the public which are held by 31 shareholders for buying directly from the shareholders by way of individual letters.
3.6 The shares of the Target company are infrequently traded therefore, being inactively traded stock, applicable guideline namely Regulation 20(3) requires to consider the book value of the share as one of the parameters amongst many others. Hence, the Acquirers have agreed to make an offer, which would be as nearer to the book value as possible considering the present state of capital markets and the textile industry, in which the Target company is operating.
4.0 The said application dated August 12, 2002 was forwarded to the Takeover Panel on August 14, 2002 in terms of sub-regulation(4) of regulation 4 of the Regulations. The Takeover Panel vide its report dated August 26, 2002 has recommended, inter alia, as under:
"The Acquirer along with the persons acting in concert already hold 93.83% of the equity shares of the Target company. The balance 6.17% of the equity shares of the Target company are held by shareholders falling in ‘Public Category’, out of which three shareholders holding 56,540 equity shares in aggregate have already offered to sell the same to the Acquirer. The balance 13,580 equity shares are held by 31 shareholders which the Acquirer intends to acquire at the price of Rs.70/- per share. The control of the Target company vests with the promoters, the Acquirer along with the persons acting in concert, and the acquisition is to enhance the stake of the promoters to 100% and to delist as per the Takeover Code. In the facts stated, grant of exemption as sought is recommended subject to the Acquirer –
(i) making individual offers to each of the remaining shareholders by directly addressing offer letters offering to buy the shares held by such letters by Registered Acknowledgement Due Post;
(ii) Submitting of Certificate of auditor / independent Chartered Accountant to the effect that the offer letters were so posted; and
(iii) Offering the minimum price per share calculated in accordance with provisions of Regulation 20 of the Takeover Code with the minimum of Rs. 70/- per share."
5.0 Subsequently , the Acquirer vide letter dated August 30, 2002 submitted to revise the offer price to a maximum of Rs.500/- per share in view of the book value of Rs. 736/- and gave the following justification for the said offer price:
(i) though the company is having substantial amount of reserves and surplus, it was accumulated slowly right from the date of incorporation i.e, from the year 1935;
(ii) the reserves are as good as the underlying assets. It is also a fact that these textile assets generated over the years, are at a discount and do not fetch much value as on date. And major portion of these assets have been created in plant & machinery and that too more than five to seven years back;
(iii) the boom in the years 1993-95, in the textile industry has completely turned southward and even now recovery in the industry is slow and no entrepreneur is ready to go for new investment in textile industry and as such the parameters such as Net Worth, EPS, Book value become a bit irrelevant for this industry and investor follow-up for the industry is poor;
(iv) that old economy industry especially textiles have very poor investor following for reasons well known. As such valuation remains low. The Economic Value Addition (EVA) is particularly negative as of now
(v) the parameters such as Book Value, RONW etc., become hypothetical and in reality the pricing in the market alone can be considered for the purpose of open offer ;
(vi) the textile machinery acquired 5 – 6 years back have no significant realizable value, which is much less than the value reflected in the books, thus bringing down the book value substantially. In case of Thiagarajar Mills Limited this impact is very high given the fact that more than 40 crores have been added in plant and machinery during the last 5 to 10 years. Specific value by textile experts can be provided if so desired by your office. Out of the total networth of 83.67 crores the plant and machinery added from out of the reserves forms more than 50% which is acquired five years back and amounts to almost Rs.50 crores.
6.0 Subsequently, the Acquirer vide letter dated 6.9.2002, submitted that, in spite of the submissions made in the letter dated 30.8.2002 as the Target company has been making profits for past several years, the Acquirer is willing to revise offer price to the book value as per the last audited balance sheet.
7.0 I have taken into consideration the application of the Acquirer documents available on record and the recommendation of the Panel.
8.0 I have noted that there are only 34 shareholders holding 70,120 shares constituting 6.17% shares of the Target company.
9.0 I have noted that the Acquirer proposes to make the offer to the public shareholders for buying shares by directly approaching the shareholders by way of individual letters.
10.0 I have noted that the shares of the Target company are infrequently traded.
11.0 I have noted that the Acquirer has proposed to give exit opportunity to the balance public shareholders at a price of Rs. 736/- (the book value per share as on 31.3.02) as per the audited financial statements for the financial year 2001-2002.
12.0 It is observed that the offer price of Rs. 736/- per share as proposed by the Acquirer to be offered to the public shareholders of the Target company is in terms of sub regulation (3) of regulation 20.
13.0 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 procedure laid down in Chapter III of the Regulations with regard to the proposed offer to acquire 6.17% from public shareholders @ Rs. 736/- per share. This exemption would be subject to :
i. the Acquirer making individual offers to each of the remaining shareholders by directly addressing offer letters offering to buy the shares held by such letters by Registered Acknowledgement Due Post;
ii. the Acquirer submitting a Certificate of auditor / independent Chartered Accountant to the effect that the offer letters were so posted;
iii. the Acquirer shall offer the same price of Rs 736/- per share to all the shareholders including the three shareholders who have offered to sell their shareholding @ Rs 70/- per share.
14.0The Acquirer is also directed that the proposed offer be completed within 3 months from the date of passing of this Order and a status report on the same be filed by the Acquirer with the Board within 15 days of completion of the offer.
Date: October 14, 2002
Place: Mumbai
G. N. BAJPAI
Chairman
Securities and Exchange Board of India