Has R-Com disclosed enough on Aircel merger?

The proposed merger of telecom giants, Reliance Communication (R-Com) and Aircel, has triggered a debate over the kind of disclosures necessary on the valuation of companies.

R-Com, the listed firm belonging to Anil Ambani group, proposes to demerge its telecom business and transfer the same to Aircel.

The company will then own 50 per cent stake in Aircel. As required by the law, the company has obtained a valuation report from an independent valuer and disclosed the same. A court convened meeting to approve the proposal is coming up next week.

Proxy advisory firm, Stakeholders Empowerment Services (SES) is of the opinion that valuation report is of little use, as it fails to disclose the valuation (monetary value) of the business and only gives the share exchange ratio of 1:1.

“Shareholders are at a loss to understand from where this ratio was arrived. SES is of the view that valuation of each company should be provided and brought to the notice of the shareholders. Therefore, SES is unable to find value of businesses being demerged or merged especially. Because it is a demerger of divisions and unlisted companies, hence, recommends shareholders vote against the resolution.”

SES has said in the report that “Information given is not sufficient to take informed decision by shareholders. This is a complex multistage scheme involving divisions of listed companies and unlisted companies. An independent complete valuation must be disclosed rather than a share exchange ratio alone.”

A Reliance communication spokesperson referred to a voting recommendation by Institutional Investor Advisory Services that had asked shareholders to vote in favour of the same proposal.

The spokesperson added, the notice and explanatory statements for the meeting is in compliance with all the disclosure requirements under section 230 of the Companies Act, 2013 and applicable rules.

“The notice and explanatory statement is providing all the material information, including supplementary accounting statements of all the companies involved in the scheme and the valuation reports. Further, the Securities and Exchange Board of India (Sebi) and the exchanges have perused the scheme, valuation reports and other relevant documents before granting their approvals,” he said.

The company further informed that the valuation exercise was carried out by S R Batliboi & Co LLP and they have arrived at the value of both the companies based on the generally accepted methodologies.

“The valuation reports have been annexed to the notice with the explanatory statement” the company added.