On Monday, the National Company Law Tribunal deferred a class-action case filed by some shareholders of ICICI Securities (I-Sec) who are up in arms over the company’s move to delist itself and merge with parent ICICI Bank under a plan that won shareholder approval on 28 March. As investors, they were offered 67 shares of ICICI Bank for every 100 of I-Sec, a brokerage business owned nearly three-fourths by ICICI Bank and the rest by the public.
As disgruntled minority owners saw it, that share-swap ratio implied their company had been valued at only about half its earnings multiple than at the time it was listed for trading six years ago. Although ICICI argued that valuations were calculated properly and the merger would benefit all involved, dissenters insisted that they had been cut a raw deal in the process.
Since over two-thirds of I-Sec’s equity pie has already voted in favour of the proposal, one may conclude that their objections got out-voted and that’s that. However, that isn’t the end of it. What muddies the story is the way votes were allegedly won. These charges need a look-in.
As alleged, ICICI Bank canvassed votes for the merger’s approval from retail holders of I-Sec shares by having bank representatives call them. The lender claims these were mere awareness calls aimed at getting shareholders to participate. Yet, dissenters have raised questions that require clear answers. Why were these calls, assuming they were made, coming from ICICI Bank reps and not from I-Sec? And how did the parent company get hold of their contact details?
What plaintiffs want probed here is whether the bank gained access to their personal data via a privacy breach. Regardless of its majority holding, since I-Sec is a separately listed firm, these details ought to have been kept secure. For all such corporate polls, the Securities and Exchange Board of India (Sebi) insists on disclosure of relevant information and forbids misleading stuff and coercion; it also has guidelines on poll communication. If any of these was explicitly flouted, authorities should easily be able to pin it. What qualifies as a coercive tactic, though, could lead investigators into a grey zone.
In its early remarks, the tribunal noted that shareholders are expected to be knowledgeable and aware of tricks of the trade. What clouds the matter further, though, are allegations of backroom manoeuvres by ICICI Bank, which is also accused of having its asset-management unit buy shares of I-Sec to get a say even in the ‘public’ portion of its equity. Employees of I-Sec who own its shares are also alleged to have been lured through stock options to vote favourably.
Interestingly, Quantum Mutual Fund, which owns a slice of I-Sec, had written to Sebi in April with objections of its own. The fund has contended that I-Sec was valued at a discount to its listed peers, causing a loss for minority shareholders. ICICI’s defence is that valuations were done independently and vetted by independent experts for both the bank and brokerage business.
A Sebi probe is on and the tribunal is expected to rule on the case. Whichever way it goes, from afar, the alertness of minority shareholders in guarding their interests looks impressive. Such activism is new to India and stirrings of shareholder democracy are good for our economy. Ownership dispersal is low, with bulk owners in command, mostly. But still, for capitalism to thrive, it must capture the voice of all investors, retail included, and their vigil holds value.
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