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The Curious Case of AstraZeneca Pharma

Published on Tue, Mar 04,2014 | 18:29, Updated at Tue, Mar 04 at 18:29Source : 

 By: Nimesh Shah, CNBC TV18

Swedish drug Giant AstraZeneca Pharmaceuticals has asked its Indian subsidiary AstraZeneca Pharma India to walk away from Dalal Street through the voluntary delisting process... and the board of the Indian company will meet on the 5th of March to discuss this proposal. Overall, this unexpected bit of news was well received... and the stock jumped 20 percent to hit its upper circuit, above Rs 1110 per share. But there is a twist in the tale.

Now let's be clear. No rules have been broken here. But not everyone is calling it a pleasant surprise. They say the move may well rob minority shareholders of the chance to get a premium for their shares from Astrazeneca. Well know stock analysts S P Tulsian said to me “  If the promoters decide an indicative price of Rs 1,200, take it from me that Rs 1,200 will be the discovered price at which the delisting will happen. If this delisting would have gone with the normal procedure as per the old rule, where the share has to be collected from the public, then I think the discovered price would have been Rs 4,000”

Here's why Tulsian believes that - Just 10 months ago, in May 2013, the Swedish parent reduced its stake in its Indian subsidiary from 90% to 75% through a successful OFS (Offer For Sale). The OFS was priced at Rs 620 per share (versus a floor price of Rs 490 per share).  This successful OFS helped it comply with SEBI's minimum 25% public float norm.

The entire 15% stake was purchased up by 6 foreign investors – all of them P-Note holders.

AstraZeneca: OFS Buyers

- Morgan Stanley Asia (S'pore): 3.7%

- DB Intl (Asia): 3.15%

- Suffolk (Mauritius): 2.85%

- BNP Paribas Arbitrage: 2.4%

- Mansfield (Mauritius): 1.7%

- Merrill Lynch Cap Mkts Espana: 1.6%

Here on for a successful delisting offer, AstraZeneca Pharma India's Swedish parent has to buy 50% of the outstanding shares – which in this case amount to 12.5% . All it has to do is for a successful delisting offer is to buyback shares from these 6 foreign investors who hold 15%. Some even argue that last year's OFS may have been a warehousing transaction, in which the company would have parked the shares with the investors with a promise to buy them back at a hefty premium within a year.

These fears, they say, are founded in history. In October 2012, the promoter of Fresenius Kabi reduced its stake from 90% to 81%. This OFS, at Rs 80 per share, saw shares going to 4 institutional investors. A few months later, Fresenius Kabi made a delisting offer at Rs 130 per share. Under the delisting guidelines, it had to acquire 9.5 percent, and this it did with ease from the institutional shareholders. But when SEBI interevened following public outcry from the company's minority shareholders, the Securities Appellate Tribunal ruled in favour of Fresenius Kabi.

So experts say AstraZeneca's delisting plans should come as no surprise. Former SEBI Executive Director JN Gupta says “This indication of a delisting was always in the market. On 6th May 2013, the company has said its parent has agreed to give a non-repayable financial grant of 140 crore rupees -- now which promoter will give out such a grant to a company unless and until the promoter owns 100 percent?”
Gupta also points out that in Fresenius Kabi's case, the objective of the OFS was not met and that raised questions about the delisting offer... whereas in AstraZeneca's case, the objective of the OFS -- to comply with SEBI's public float norms -- was met. However, there is wide agreement that there is a loophole in SEBI's delisting guidelines, which is screaming to be plugged.


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