Shareholders ram Tatas on TEC merger ratio

Calling the swap ratio as "most unfair and unjustified," shareholders demanded that the merger ratio should be pegged at 1:1:1.

Taking strong objection to a valuation done by S B Billimoria & Company, shareholders said valuer had given much weightage to market value rather than book value. The group had valued the three companies on the basis of their earnings per share, assets and market value, Tata said. “Since the companies had similar earnings and Tata Power’s market value was more than the other two, we have given higher weightage to earnings and market value and lower to assets,” the chairman explained.

Admitting that dividend could be reduced, Tata assured the shareholders that “it will be only to strengthen the company.” After demanding a poll on the issue, the shareholders cast their votes and the counting will be done on Monday and its results will be released on the same day.

The company said the valuation has been done by using earnings method, asset approach and market price theory. "However, greater weightage has been given to earnings and market approach while lesser to asset approach," he added.

Malegam turned down a demand by a section of shareholders to release valuation price on account of secrecy. However, during valuation they had gone through the trends in market price since 1994-95 and it was revealed that Tata Power’s market value is 1.4 time of Andhra Valley and Tata Hydro. “Shareholders have whole-heartedly approved the merger and also the swap ratio after initial opposition during the extra ordinary general meeting,” Adi Engineer, managing director-designate of TEC said.

“The merger would help the merged entity to be a stronger company in both national and international context,” Tata said, adding, “After the merger, Tata Power intends to undertake major projects outside Maharashtra and also at an international level. Instead of three companies with weak balance sheets, we like to present ourselves as a strong and reliable for all these bids.”

He said the merged entity would also make a foray into the internet and communications revolution. Post-merger Tata Power plans to launch an Internet Service Provider gateway in the country along with supply of bandwidth and expansion of its well-established network of optical fibre in Mumbai, Tata said. After the merger, Tata Power’s capacity would increase to 2,555 mw as compared to 1,800 mw in Mumbai, he informed.

Maharashtra government’s recent cut in stamp duty which would reduce company’s liability from Rs 300 crore to duty Rs 50 crore was another reason for the merger, he said. Post-merger, Tata Sons would increase their stake by 25 per cent, while the holdings of the institutions would be 27 per cent, Engineer said. The merger would be effective from April 1, 2000.