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Journalism of Courage
The Securities and Exchange Board of India (Sebi) has decided to take legal opinion in the matter related to the proposed demerger of L&T’s cement business into a separate company.
Sebi has now sought the legal opinion on the proposed move by the L&T board to ascertain whether it violates the provisions of Sebi’s Substantial Acquisition of Shares and Takeover (SAST) Regulations and has referred the issue to its legal department.
A senior Sebi official said: “We have decided to refer the issue to our legal department. The opinion sought from the legal department is whether a target company can restructure its business particularly when an open offer has been proposed. After we receive the opinion we will take a view on the matter, as there is much time left for the L&T board to discuss the demerger proposal.” The counter-view could be that since the open offer is now stalled and there is no time limit by when the offer will now take place, a move to demerge the cement business could, in fact, be considered. The legal opinion will dwell on these issues, sources said.
The L&T board discussed the demerger proposal on December 7, but the board decided to put off a decision on it until the next meeting scheduled on December 28. The demerger proposal broadly entails L&T holding a stake of about 70 per cent in the demerged entity, with about 7 per cent with a financial investor. A proposal from the Commonwealth Development Corporation (CDC) as a financial investor will be considered.
Sebi sought legal view in this matter after it received investor complaints relating to the proposed demerger. The complaints alleged that the demerger plan was violative of clause 23 of the Sebi SAST Regulations, widely known as the Takeover Code.
This clause deals with general obligations of the board of directors of the target company, in this case L&T, among other things that ‘unless the approval of the general body of shareholders is obtained after the date of the public announcement of offer, the board of directors of the target company shall not, during the offer period, sell, transfer, encumber or otherwise dispose of or enter into an agreement for sale, transfer, encumbrance or for disposal of assets otherwise, not being sale or disposal of assets in the ordinary course of business, of the company or its subsidiaries. The regulation also similarly forbids entering into any material contracts.
