Indian Syntans Investments Pvt. Vs. Bayer Cropscience Ag, Aventis - Court Judgment

Excerpt:
1. what should be the price of the shares in terms of regulation 20(2) of the securities and exchange board of india (substantial acquisition of shares and takeovers) regulations, 1997 (hereinafter referred to as the regulations) as it stood prior to its amendment with effect from 9.9.2002 which bayer cropscience ag, germany (hereinafter called "the acquirer") should offer to the shareholders of aventis cropscience india ltd., mumbai (for short "the target company") on its indirect acquisition is the short question which arises for consideration in this bunch of five appeals nos. 99 to 101, 103 & 110 of 2002 in which common questions of law and fact arise. this order will dispose of all these appeals and since arguments were addressed in appeal no. 101 of 2002, the facts are being.....

Judgment:
1. What should be the price of the shares in terms of Regulation 20(2) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as the Regulations) as it stood prior to its amendment with effect from 9.9.2002 which Bayer CropScience AG, Germany (hereinafter called "the acquirer") should offer to the shareholders of Aventis CropScience India Ltd., Mumbai (for short "the target company") on its indirect acquisition is the short question which arises for consideration in this bunch of five Appeals nos. 99 to 101, 103 & 110 of 2002 in which common questions of law and fact arise. This order will dispose of all these Appeals and since arguments were addressed in Appeal no. 101 of 2002, the facts are being taken from this case. Learned counsel for the parties are agreed that the decision in this case will govern the other cases as well. The undisputed facts giving rise to these appeals are as under.

2. The appellant is a company incorporated under the Companies Act, 1956 with its registered office at Chennai. It, along with its associates holds approximately 4.8% of the share capital in the target company. By an agreement dated October 2, 2001 the acquirer acquired 100% of the share capital of Aventis CropScience Holdings SA, France (for short the holding company) from Aventis SA France and Schering AG, Germany. The holding company was engaged in agricultural business worldwide including India and it held 67.08% of the share capital of the target company in India. With the acquisition of the holding company, the acquirer acquired indirectly 67.08% of the controlling interest in the target company as a result whereof the Regulations got triggered. The acquirer was obliged under the Regulations to make a public offer to the remaining shareholders to acquire the statutory percentage of shares at a minimum offer price to be determined in accordance with the Regulations. On June 7, 2002 the acquirer through its merchant bankers - Ambit Corporate Finance Pvt. Ltd. made a public announcement offering to acquire 32.92% of the outstanding paid up equity capital at a price of Rs. 157 per share. The appellants in this bunch of appeals who are the shareholders of the target company claim that the price offered by the acquirer is inadequate and that they should have been offered the negotiated price under the agreement dated 2.10.2001. As already observed, the dispute herein is in regard to the price offered by the acquirer. Since the dispute hinges on the interpretation of Regulation 20(2) of the Regulations as it stood prior to its amendment with effect from 9.9.2002 it is necessary to refer to the same. The relevant part of Regulation 20(1) and sub-Regulation (2) is reproduced hereunder for facility of reference: 20. Minimum Offer Price - (1) The offer to acquire the shares under Regulation 10, 11 or 12 shall be made at a minimum offer price which shall be payable - (b) by exchange and/or transfer of shares of the acquirer company, if the person seeking to acquire the shares is a listed body corporate; or (c) by exchange and/or transfer of secured instruments with a minimum of "A" grade rating from a credit rating agency; (2) For the purposes of sub-regulation (1), the minimum offer price shall be the highest of - (a) the negotiated price under the agreement referred to in sub-regulation (1) of Regulation 14; (b) the highest price paid by the acquirer or persons acting in concert with him for any acquisitions, including by way of allotment in a public or rights issue, if any, during the 26 weeks period prior to the date of public announcement; (c) the price paid by the acquirer under a preferential allotment made to him or to persons acting in concert with him at any time during the twelve months period up to the date of closure if the offer; (d) the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the stock exchange where the shares of the company are most frequently traded during the 26 weeks preceding the date of public announcement.

Having regard to the objects of the Regulations, it is clear that the acquirer while making a public announcement has to offer to the remaining shareholders a minimum offer price as may be determined in terms of sub-Regulation (2) of Regulation 20 of the Regulations. A reading of this Regulation which has been reproduced herein above leaves no room for doubt that a minimum offer price has to be calculated in four different methods enumerated in Clauses (a) to (d) of the Regulation and the highest of the four is the minimum offer price. It may be clarified here that this Regulation only prescribes a minimum offer price and it is open to the acquirer to offer a higher price to the shareholders. The acquirer in the public announcement offered a price of Rs. 157/- per share to the shareholders of the target company and accordingly, in terms of the Regulations sent a draft letter of offer to the Securities and Exchange Board of India (for short the Board) for its approval. The Board gave its comments on the draft letter of offer and suggested some changes though it approved the price offered by the acquirer. The appellant made several complaints to the Board alleging that the price offered by the acquirer was inadequate and that the shareholders should have been offered the negotiated price under the agreement dated October 2, 2001 which according to it was much higher than the average of the weekly high and low of the closing prices of the shares of the target company during the 26 weeks preceding the date of public announcement. The grievance of the appellant is that the minimum offer price was worked out in terms of Clause (d) of Regulation 20(2) instead of working out the same in terms of Clause (a) thereof. It was also argued on behalf of the appellant that the acquirer made a wrong statement both in the public announcement as also in the draft letter of offer when it stated therein that there was no negotiated price. Shri N.H. Seervai, the learned senior counsel appearing for the acquirer, on the other hand, contended that the price was rightly fixed in terms of Clause (d) of Regulation 20(2) and that the agreement dated October 2, 2001 did not fix any price for the shares of the target company in India. Shri Kumar Desai, the learned Counsel for the Board urged that the acquirer had fixed a fair price for the shares of the target company inasmuch as it was higher than the average of the weekly high and low of the closing price of the target company as quoted in the Bombay Stock Exchange during the 26 weeks preceding the date of public announcement.

3. We have heard the learned Counsel for the parties and are of the view that there is no merit in the appeal. The acquirer is obliged to offer a minimum offer price to the shareholders of the target company which has to be the highest of the four methods of determination prescribed in Regulation 20(2) of the Regulations. Clause (a) talks of the negotiated price under the agreement referred to in sub-Regulation (1) of Regulation 14. This agreement in the instant case is the one dated October 2, 2001 whereby the acquirer acquired the holding company as a result whereof the controlling interest in the target company in India got indirectly acquired. We have perused the agreement executed between the acquirer and Aventis SA France and Schering AG, Germany whereby the holding company was acquired and find that the parties to the agreement did not determine any price of the shares of the target company which is one of the many subsidiaries of the holding company .

The learned Counsel appearing for the appellant also conceded before us that there is no such determination of the negotiated price in regard to the shares of the target company in the agreement dated October 2, 2001. In the absence of any negotiated price it is obvious that Clause (a) of Regulation 20(2) does not apply. We are then left with the other three modes of determination of the minimum offer price. It is not the case of the appellant that Clauses (b) and (c) were applicable. The only other clause which could be made applicable for determining the minimum offer price is Clause (d) of Regulation 20(2) according to which the average of the weekly high and low of the closing prices of the shares of the target company during the 26 weeks preceding the date of public announcement would be the minimum offer price. The acquirer informed the Board that it was offering a price of Rs. 157/- per share to the shareholders where as the price of the shares as worked out in accordance with the Clause (d) would come to Rs. 106.99 on the basis of the data collected from the Bombay Stock Exchange where the shares of the target company are frequently traded. Since there was some delay in the payment of the amount to the shareholders the acquirer added interest at the rate of 15% per annum for the period from July 3, 2002 to September 20, 2002 and on this basis the total price of a share would work out at Rs. 110.51p. These figures as pointed out by the acquirer were verified by the Board and it found that the offer price of Rs. 157/- was significantly higher than the minimum price in terms of Clause (d) of Regulation 20(2). It is on this basis that the Board approved the price factor in the draft letter of offer. As already observed it is this action of the Board which is under challenge. Since we have found that there was no negotiated price of the shares of the target company in India and the only method available for determining the minimum price was the average of the weekly high and low of the closing prices of the shares of the target company as quoted on the BSE during the 26 weeks preceding the date of public announcement, the Board was right in approving the draft letter of offer in so far as to the price of the shares was concerned. No fault can, thus, be found with the action of the Board in this regard.

4. The learned Counsel for the appellant however contended that even though there was no negotiated price of the shares of the target company in India yet the shareholders were entitled to the price negotiated for the global acquisition of the holding company. We are unable to accept the contention because the Regulations do not entitle the shareholders in India to claim that price. In our opinion, it would be most unfair on the part of any shareholder in India to claim the price of the share at a rate at which the holding company at the global level was acquired. The learned Counsel contended that if the shareholders are not offered the global price then it would mean that the Regulations are given a go by in the case of indirect acquisition.

Here again we are unable to agree with the learned Counsel. Even in the case of indirect acquisition, as is the case before us, there could be a negotiated price for the shares of the target company if the parties had determined the same. In the case of the subsidiaries of the holding company in China, the parties to the agreement specifically determined the price of the shares of the subsidiaries in that country where as no such price was determined or negotiated by the parties in regard to the subsidiary of the holding company in India which is the target company.

When the draft letter of offer was received by the Board, it specifically made enquiries from the acquirer as to whether the price of the shares of the target company in India had been evaluated at the time of global acquisition of the holding company to which the acquirer replied in the negative and substantiated its plea with an affidavit from the counsel in Germany who had handled the global acquisition.

Reference to this finds mention in the letter dated July 15, 2002 addressed by the merchant banker of the acquirer to the Board wherein it was stated as under: We confirm, on behalf of Bayer CropScience AG, that no due diligence, in particular no financial due diligence, has been carried out with respect to Aventis CropScience India Ltd. (ACSI) Consequently, no valuation of ACSI has taken place at any time in the course of the valuation of Aventis CropScience globally.

A declaration to the above effect signed by Dr. Gerhart Merchand, General Counsel of Bayer CropScience AG, who was also the Lead lawyer of Bayer in the requisition process and negotiations with Aventis with respect to the acquisition of Aventis CropScience, is enclosed.

We are therefore of the view that the shareholders of the target company in India cannot claim the price of the shares for which the holding company was acquired at the global level.

5. Before concluding, we may take note of a preliminary objection which was raised by the Board regarding the maintainability of the appeal at the time of admission of the appeal. It was contended that there was no appealable order passed by the Board against which the appeals could be filed. By a detailed interim order the objection was overruled and the appeals were admitted. In view of that order, the learned Counsel for the Board did not press the issue before us.

6. In the result, the appeals fail and the same stand dismissed with no order as to costs.