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SEBI: Improving but…

Mar 26, 2003

Two of the most high profile investigations into the violation of the takeover code have ended in the acquittal of both the accused parties. These investigations pertain to the accusations that Gujarat Ambuja Cements limited (GACM) and Grasim had gained management control over ACC and L&T respectively without making the mandatory an open offer. These investigations had created a lot of interest among the investor community mainly due to the gains that could have accrued to investors in L&T and ACC if the ruling was the other way round. This case also highlighted to an extent the proactive nature of SEBI. On the orders of the SAT (Securities Appellate Tribunal) SEBI had started investigations in to the violations of the take over code by Grasim and GACM. SAT’s actions were prompted by the fact that both Grasim and GACM had paid a huge premium to acquire their respective stakes in L&T and ACC. Grasim had paid Rs 306 per share to Reliance to buy a 10% stake in L&T. While GACM on the other hand had paid Rs 370 per share to the Tata’s in order to get a 14.4% stake in ACC.

In case of Grasim, it never looked like it had management control of L&T. This was apparent from the difference of opinions of both the management’s post the open offer by Grasim. In case of Gujarat Ambuja one would have expected a different judgement, as there were clear signs of better understanding between GACM and ACC. But even here there was no clear evidence to indicate that GACM had actually taken management control of ACC.

The results of the investigations were a dampener for those investors who had entered L&T and ACC on hopes of a lucrative open offer. Luckily the companies in question, i.e., ACC and L&T are sound with healthy managements. So even if the investors’ speculator call (i.e. open offer) did not materialize, they still hold shares in growing companies, which going forward will give them returns. However, investors may not be as lucky the next time around. In effect, investors are better off if they rely on the company fundamentals, rather than moves or news that are speculative.

While SEBI by investigating these take over code violations had shown its initiative to protect minority shareholder interest, its lack of transparency has blunted the desired effect. If one is to visit the SEBI site, the ruling does not list out the prima facie evidence found in favour of the aforesaid companies. In effect, though the ruling by SEBI may have been fair, retail investors have no way of knowing so. The least SEBI could have done was to state the reasons why it came to its decisions. Without transparency, retail investors can never be helped in the right way.


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