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The Bombay Dyeing Takeover story has had several twists and turns over the last fortnight with excessive wrangling between Arun Bajoria and Bombay Dyeing over the alleged violation of takeover code. The violation is with respect to the protection of the rights of minority shareholders. In the case of a takeover the regulator needs to ensure that the code is followed and each party involved is entitled to his rights. Here is look at the issue from the outsider’s perspective…. What is being alleged and who is the accused?

Arun Bajoria, the Jute baron who is the raider in the Bombay Dyeing story has a 14 percent official stake in the company. Bajoria has been planning to offload these shares and talked to the Reliance group in this regard. However the petrochemical giant has said that it has no interest in buying the shares of Bombay Dyeing. Bombay Dyeing is a valued customer of Reliance for paraxylene - a critical raw material for manufacture of DMT, which is the main product of Bombay Dyeing. However there were speculations that the Reliance group may not be averse to picking up Bombay Dyeing shares, since the group had a long-running feud with the Nusli Wadia-controlled Bombay Dyeing.

The threat to Bombay Dyeing is perceived in terms of the possibility that Bajoria sells his shares to a serious competitor. Bajoria has the full rights of a raider and cannot be held back from making a rightful claim to his share in the company. However he would be required to fulfil the obligations of such an intending raider by making a public offer to buy out retail shareholders at the right price. If the incumbent management then deems it fit, it can fight the takeover by a suitable counter offer.

The battle between the raider and the company stalwarts need to be fought in the market place and not behind closed doors. The benefits of the tussle must flow to minority shareholders who have seen their wealth decline despite their company being cash rich. In this context, there needs to be an insight into the takeover code too. The loopholes in the takeover code have now forced SEBI to take action. The code has been under review for over two years now and there is a need to expedite the process so that the shareholders are not deprived of their rights.

At this point of time, Arun Bajoria awaits his move till SEBI pronounces its verdict on the issue. He is not likely to offload his holdings in Bombay Dyeing till SEBI clears him of any violation of the takeover code as has been alleged by the Bombay Dyeing promoters. Moreover Bajoria wants to be a seller at 200 plus prices and is apprehensive of offloading his share at current prices. The delay in the decision will give Bajoria more breathing time and a chance to strike a deal for a strategic sale.

The hullabaloo about the issue came into the limelight only after Bombay Dyeing suddenly realized that Bajoria had mopped up a sizeable percentage of its floating stock. This happened because the stock is only 45 percent dematted and there was no clear detail on the pattern of shareholding and changes thereafter. This was followed by muscle flexing, letters-shooting and investigation exercises by SEBI and the stock exchanges. The governmental interference in the DCM and Escorts case in the early 1980s led to a perception that takeover bids would never be allowed and promoters of companies could afford to keep low holdings in companies without caring for the market valuation of their companies. If the company ever felt threatened, they would have paid sufficient attention to the stock price and that would automatically have rendered such hostile bids difficult. It would also have generated more wealth for the shareholders.

This episode is gonna be the acid test for cash rich corporates and also for the regulatory agencies in the country. The incumbent managements need to now seriously look at the way they run the business while the regulators need to tighten the codes to avoid further such instances of allegations and accusations.

Deepak V Kuriakose

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