Birlas can’t sell part stake in Idea till Sebi clean chit
Promoters bought 0.23% just before Vodafone merger announcement, allegedly in violation of securities laws
The promoters of Idea Cellular have given an undertaking to the Securities and Exchange Board of India (Sebi), that they will not sell their 0.23 per cent stake in the telecom company which they acquired just before the announcement of a merger with Vodafone India.
The undertaking to the capital market regulator came after it began a probe into the acquisition of an additional stake by Idea Cellular’s promoters in the December quarter last year, which, according to a Sebi observation, was in violation of securities laws.
The merger was announced in March and would catapult the IdeaVodafone merged entity to the number one telecom company in India with over 41 per cent of revenue market share.
Sebi has asked Idea Cellular to bring all these facts before the National Company Law Tribunal (NCLT), which would begin hearing on the merger petition in the first week of December.
The Aditya Birla Group company has also given an undertaking to Sebi, that in case there is any liability against it due to the acquisition of additional shares by its promoters, then it would be borne by the company.
According to the statistics submitted to stock exchanges, the promoters bought 8.17 million shares and raised their stake in the company from 42.2 per cent in September 2016 quarter to 42.5 per cent in the December 2016 quarter. The merger talks first made news in August 2016.
When contacted, an Aditya Birla group spokesperson declined to comment. Idea shares closed at ~93 a share on Wednesday, up 1.14 per cent.
“If the Sebi investigation finds insider trading, then it can impose a penalty, which can be challenged in the Securities Appellate Tribunal (SAT) and then in the Supreme Court. But I don't think it will impact the merger per se,” said a corporate lawyer, requesting not to be named.
According to the merger plan announced in March 20 this year, Idea was to contribute all its assets and its 11.15 per cent stake in Indus Towers into the merged entity, while Vodafone was to contribute Vodafone India, including its standalone towers but excluding its 42 per cent stake in Indus Towers.
Both Idea and Vodafone said based on Idea’s undisturbed share price (~72.5 based on the 30 trading day VWAP (volume weighted average price) as on January 27, 2017), the agreed merger ratio implied an enterprise valuation of Vodafone India at ~82,800 crore and an enterprise value for Idea’s mobile business at ~72,200 crore.
According to the plan, Vodafone will own 45.1 per cent of the combined company after transferring a 4.9 per cent stake to the Aditya Birla Group for ~3,900 crore in cash, concurrent with completion of the merger. The Aditya Birla Group will then own 26 per cent of the combined company, and Idea Cellular’s minority shareholders will own the remaining 28.9 per cent.
The Aditya Birla Group also has the right to acquire up to a 9.5 per cent additional stake from Vodafone to equalise its shareholdings over time. If the Aditya Birla Group does not equalise its stake, Vodafone will reduce its holding in order to equalise its ownership with that of the Aditya Birla Group. Until equalisation is achieved, the additional shares held by Vodafone will have restricted voting rights, according to the terms of the shareholders’ agreement.