A few months back we had the two largest private shipbuilders in India involved in a takeover battle for acquiring the controlling stake in India's largest integrated offshore services player, i.e. Great Offshore. Bharti shipyard wanted to fend off ABG shipyard from acquiring 26% stake in the company and had to revise up its open offer price. These days another Corporate battle is doing the rounds and the company involved is none other than Anil Ambani's Reliance Media Works.
As you all must be aware that Inox purchased 43.2% stake in Fame from the Shroff family, the erstwhile promoters of the company, for Rs 44 a share last month and subsequently bought another 7.2% stake for Rs 50.75 before launching the mandatory 20% open offer for the minority shareholders at Rs 51 a share. Now, the only concern for Inox is the counter bid by RMW to acquire 63% stake for Rs 83.5 a share, while it currently holds 12%.
Well, with Inox holding more than 50% stake in Fame, there is no way that RMW can acquire 63% stake by the open offer. However there still remains a concern for Inox, because it would definitely not want RMW to secure a board seat and veto power over corporate decisions, and that may happen provided RMW acquires a minimum 26 per cent stake in the company.
Now, what is it about 26% that many companies look forward to it ?
We all want certain powers bestowed on us. India lobbied for securing a permanent seat on UN Security Council, because it could have give us Veto Power, which at present is just with 5 countries.
Similarly, in Corporate Democracy the Investors wish to have certain powers so that the Management doesn't take decisions which might go against the interest of the shareholders. However, not everyone can be given similar rights, and thus every investor has voting rights commensurate with his shareholding in the company. Now, to be able to exercise control and authority over decision making, one needs to have larger interest in the company.
So, here comes the magic figure of 26 per cent. As per the provisions contained in the Companies Act, shareholders will have veto powers only when they hold a minimum stake of 26 per cent in the company. Generally, Veto powers denotes exercising authority of passing / not passing a resolution at the General Meeting or Board Meeting of a Company.
One can secure a board seat and the Veto power, if he holds 26% stake, and as it goes, the Veto power gives one the power to scuttle a proposal despite being in a minority given the fact that it takes a 75 per cent majority to pass special resolutions at company's General Meeting or Board Meeting. It can both prove to be a curse or a boon depending on the intentions of the one with the power, and it is quite obvious that Inox would not want RMW.
- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com
As you all must be aware that Inox purchased 43.2% stake in Fame from the Shroff family, the erstwhile promoters of the company, for Rs 44 a share last month and subsequently bought another 7.2% stake for Rs 50.75 before launching the mandatory 20% open offer for the minority shareholders at Rs 51 a share. Now, the only concern for Inox is the counter bid by RMW to acquire 63% stake for Rs 83.5 a share, while it currently holds 12%.
Well, with Inox holding more than 50% stake in Fame, there is no way that RMW can acquire 63% stake by the open offer. However there still remains a concern for Inox, because it would definitely not want RMW to secure a board seat and veto power over corporate decisions, and that may happen provided RMW acquires a minimum 26 per cent stake in the company.
Now, what is it about 26% that many companies look forward to it ?
We all want certain powers bestowed on us. India lobbied for securing a permanent seat on UN Security Council, because it could have give us Veto Power, which at present is just with 5 countries.
Similarly, in Corporate Democracy the Investors wish to have certain powers so that the Management doesn't take decisions which might go against the interest of the shareholders. However, not everyone can be given similar rights, and thus every investor has voting rights commensurate with his shareholding in the company. Now, to be able to exercise control and authority over decision making, one needs to have larger interest in the company.
So, here comes the magic figure of 26 per cent. As per the provisions contained in the Companies Act, shareholders will have veto powers only when they hold a minimum stake of 26 per cent in the company. Generally, Veto powers denotes exercising authority of passing / not passing a resolution at the General Meeting or Board Meeting of a Company.
One can secure a board seat and the Veto power, if he holds 26% stake, and as it goes, the Veto power gives one the power to scuttle a proposal despite being in a minority given the fact that it takes a 75 per cent majority to pass special resolutions at company's General Meeting or Board Meeting. It can both prove to be a curse or a boon depending on the intentions of the one with the power, and it is quite obvious that Inox would not want RMW.
- Ekansh Mittal, Lead Associate - HBJ Capital Services Pvt. Ltd
Email: Ekansh@hbjcapital.com
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