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Oil and Natural Gas Corporation’s (ONGC’s) stand to not make an open offer to minority shareholders of Hindustan Petroleum Corporation Ltd (HPCL) after buying the government’s 51.1 per cent stake in HPCL has evoked different responses from merger and acquisition experts. While some feel that the deal triggers open offer, there are others who say that it does not. There are also questions being raised over this model of divestment.
J N Gupta, co-founder and managing director of proxy advisory firm Stakeholders Empowerment Services, said that a closer look at the deal between ONGC and HPCL shows that the transaction is not exempt from the takeover code. “While Sebi has the power to exempt certain deals from the requirement of making an open offer based on the explanation provided by the companies, my interpretation of law is that this transaction does not qualify for exemption from the takeover code and thus an open offer needs to be made to give minority shareholders an option.”
While ONGC has maintained that the company will not have to make an open offer to minority shareholders of HPCL as the government’s holding is being transferred to another state-run firm and the ownership is not changing, Gupta said that as of now, both HPCL and ONGC are controlled by the President of India, so, “After the deal, while ONCG will be controlled by the President of India, HPCL will be in control of ONGC which is a listed entity. In my opinion, ONGC and the President of India are different and an open offer should be made to the minority shareholders,” said Gupta.
Prithvi Haldea, chairman of PRIME Database, said that the deal does not trigger open offer as there is no change in promoter. “The promoter of both the companies is the President of India and, so, I don’t think it triggers open offer.” He, however, said that he is not in favour of divestment through cross-holding as it does not meet the objective of expanding retail base and deepening the markets and bringing new investors.
Gupta said that such an exception will not be given if a similar transaction takes place between two companies held by one corporate house. Reflecting the concerns on open offer, shares of HPCL fell 4.34 per cent to close at Rs 367.5 on Thursday. Shares of ONGC rose by 1.75 per cent to end at Rs 165.90 on Thursday. On Wednesday, the Cabinet approved sale of the government’s 51.11 per cent stake in oil refiner HPCL to India’s largest oil producer ONGC. Estimated at between Rs 26,000 crore and Rs 30,000 crore, the deal is expected to get completed within a year.