“Will the demerger require approval from the majority of minority?” was the first question asked on the call with investors after the merger announcement in May. The question was asked by SBI Mutual Fund, which owned less than 1 per cent of Century at the end of June 2018.
Shares of Century textiles have more than halved from the peak and are down almost 30 per cent since the announcement, while UltraTech’s shed 13 per cent.
Century’s investors believe that valuations offered for its cement plants are rather inadequate. At the current prices, Century’s cement assets are valued at $78 per tonne as compared to $150 per tonne in case of UltraTech. Although the assets of the two are not comparable, analysts do claim that $78 per tonne appears too cheap. The management said that Century plants are old and will require huge capex.
To be sure, the replacement value of a cement plant is about $120-150 a tonne, including the expenses of a captive power plant.
Promoter holding in Century textiles is 50 per cent and in UltraTech, it is 62 per cent “As minority shareholders, we are not happy, and it is management’s fiduciary duty to get bidding from other shareholders as well. We think the asset can give us much more,” said Dheeresh Pathak of Goldman Sachs on the call. Goldman Sachs owns 1.25 per cent in Century.
The management said the valuation has been fairly arrived at by independent valuers — Bansi S. Mehta & Co and Walker Chandiok & Co. “A transparent bidding process would give us a fair value rather than the one done by the independent valuer,” said another investor.
The Lodha family, which owns shares of one of the holding companies of Century Textiles also tried to block the merger, but the court rejected it.
After the demerger, Century Textiles will be left with paper, textiles and real estate business, which presently contribute around 40 per cent of the revenues.
In the past, both the Grasim-AB Nuvo merger and the Madura Garments-Pantaloon union were opposed by some minority shareholders. However, on both occasions the management secured the mergers.
A vote Thursday in favour of the merger could be a negative for Century Textiles but a positive for UltraTech. A lot will depend on Aditya Birla Sun Life (the same group company), which has increased its holding to 4.83 per cent and is now the largest shareholder in Century.
Still, there are several other institutions that can influence the merger but own shares of both — UltraTech as well as Century. For instance, Life Insurance Corporation owns 2.33 per cent in UltraTech and 1.95 per cent in Century.
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