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SEBI Complaint |
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January 27th, 2009
To,
The Chairman
Securities Exchange Board of India
Mumbai.
Dear Sir, |
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Sub: Public announcement of Daiichi Sankyo to the equity share holders of Zenotech Laboratories Limited; statutory violations of Daiichi Sankyo Company Ltd. |
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I wish to bring to your kind notice that I am the Managing Director, founder and promoter, as well as shareholder, having 26% of shares (with my wife, Padmasree Chigurupati) in M/s. Zenotech Laboratories Ltd., Hyderabad (Zenotech).
I refer to the Public Announcement dated January 17th, 2009 by ICICI Securities for and on behalf of Daiichi Sankyo Company Limited (Daiichi) proposing to acquire up to 20% of the current paid up equity share capital from the shareholders of Zenotech at a price of Rs. 113.62.
I believe the Offer Price of Rs. 113.62 per equity share is not justified in terms of Regulation 20(4) along with other relevant regulations. |
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In January 2008, Ranbaxy Laboratories Limited (Ranbaxy) acquired 46.85% of shares along with voting rights in Zenotech duly following the mandatory ‘open offer’, apart from complying with the other mandatory regulations of SEBI. In fact, Ranbaxy acquired some of my shares (from and out of promoter’s stake), the preferential shares and also the shares tendered in the open offer at Rs.160/- per share.
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Later, Daiichi Sankyo Company Ltd., (Daiichi) entered into an agreement with the promoters of Ranbaxy to buy the promoter’s entire share holding @Rs.737/- per share. In fact, as per the mandate under Regulations 10 & 12 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, a public announcement was made, as was published in The Economic Times, dt.16-06-2008, notifying the shareholders of the Ranbaxy as to the acquisition of the promoter’s shareholding by Daiichi, apart from announcing the mandatory open offer for the acquisition of 20% of shares in Ranbaxy from the willing public shareholders. |
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It is evident from the public announcement referred to above that there would be an imminent change in the constitution of the Board of Directors of Ranbaxy, in which Daiichi is to nominate the majority of Board of Directors, the consequence being that there is going to be a change in control in the management of Ranbaxy. |
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| In view of the above arrangement as to the control of management of Ranbaxy by Daiichi, the resultant position is that Daiichi, through Ranbaxy, acquires the voting rights to the extent of 47% in Zenotech, of which I am the founder, promoter and Managing Director. |
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| On 11-06-2008, the Board of Directors of Ranbaxy communicated to the Stock Exchange the outcome of its meeting held on the even date, informing, inter alia, that: |
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“In view of the Company holding 46.95% of the Equity Shares of Zenotech Laboratories Ltd., (“Zenotech”), B (i) above has also triggered an “Open Offer” to be made by “Daiichi Sankyo” to the public shareholders of “Zenotech” to acquire a minimum of 20% of the Equity Shares of “Zenotech” at a price to be determined under applicable SEBI Regulations.” |
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In course of time, Daiichi has completed the take over of Ranbaxy to the extent of the entire stake of the promoters of Ranbaxy as well as the shares offered in the ‘Open Offer’ by the individual shareholders. It is relevant to state that with the said acquisition of interest in Ranbaxy, Daiichi has also indirectly acquired a stake in Zenotech to the extent of 47%, the same being the stake of Ranbaxy in Zenotech. |
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As of January19, 2009, Daiichi owned 64 % (approx.) of shares of voting rights in Ranbaxy, making Ranbaxy, a subsidiary of Daiichi. In fact, on 19th January, 2009, Daiichi gave a public announcement for open offer to acquire shares of Zenotech, albeit, at the rate of Rs.113.62 per share. |
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A perusal of the statutory scheme reveals that under regulation (2)(1)(e)(2), Ranbaxy falls under the category “of a person acting in concert”. In view of regulation (2)(1)(e)(a) read with regulation 20(4)(b), the acquirer, i.e. Daiichi, is mandated to buy the shares of Zenotech at Rs.160/- either in open offer or otherwise, in as much as, that was the price paid by Ranbaxy, the person acting in concert. |
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It is evident from the public announcement referred to above, that there would an imminent change in the constitution of the Board of Directors of Zenotech, the consequence being that there is going to be a change in the control of the management of Zenotech. |
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It may kindly be appreciated that, Ranbaxy holds 47 % of shares and voting rights in Zenotech; now Daiichi intends to acquire 20 %, enabling Daiichi to be the promoter of Zenotech. |
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Referring back to the newspaper reports, it is stated that Daiichi and Ranbaxy made public statements as early as on 11-06-2008, making public their intention to acquire shares in Zenotech. As such, under Regulation 14(1) of the Regulations, a public announcement ought to have been made not later than 4 days from the said date, when the intention of Daiichi to acquire shares in Zenotech was made public. The public announcement made by Daiichi with regards to Ranbaxy on 16-06-2008 leaves no doubt in one’s mind that Daiichi had a desire and intention to acquire shares in Zenotech. The news item published on 04-07-2008 in Economic Times (Mumbai Edition) confirms the above intention. |
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Clearly, Daiichi has violated the regulations by failing to make a public announcement within the stipulated time, as required under Regulation 14(1) of the Regulations. As Ranbaxy has acted in concert with Daiichi, both Ranbaxy and Daiichi and their respective officers in charge have exposed themselves to prosecution and penalty under the Regulations, as well as the SEBI Act, 1992. |
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Aggrieved by the inaction on the part of both Daiichi and Ranbaxy, some of the shareholders of Zenotech filed writ petitions in W. P. No.15183 of 2008 and W. P. No.15187 of 2008 on the file of the Hon’ble High Court of Andhra Pradesh questioning the illegality involved in the taking over proceedings referred to above. |
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As Zenotech, apart from Daiichi and Ranbaxy, was also arrayed as a respondent, on receiving information as to filing of the writ petitions, I brought it to the notice of the management of both Daiichi and Ranbaxy. Consequently, the management of Ranbaxy informed to persuade the aggrieved share holders/writ petitioners and to prevail upon them to withdraw the writ petitions on the assurance that their shares would also be purchased, if offered consequent to open offer, @Rs.160/-. Acting on the assurance of Daiichi, I had requested and persuaded the writ petitioners to withdraw the writ petitions, which they did. It is interesting to state that in the course of communication that has followed between me and Daiichi, there has been an express assurance/undertaking that they would be purchasing the stake of the promoter too at the same rate. |
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Leaving aside the assurance and undertaking insofar as buying the shares of the promoter, I wish to stress that the recent open offer on the part of Daiichi to purchase zenotech shares at Rs.113.62 is totally illegal, being against the interests of the individual share holders.
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In view of taking over of Ranbaxy by Daiichi, I had tried to meet the top management of Daiichi, to apprise them of the position of Zenotech in the scheme of things to protect the interests of the investors in Zenotech. Nomura (India) who acts as
Financial Advisor to Daiichi advised me in mid June, 2008 to meet Mr. Malvinder Singh, Managing Director of Ranbaxy regarding Daiichi transaction. After two meetings with Mr. Singh, one in London and another in Delhi, I again sought a direct appointment with Daiichi. Daiichi management, again, through e-mail dated June 25th, 2008, advised me, to discuss with Mr. Malvinder Singh as he has been authorized by Daiichi to represent them in this regard. In mid July, at the invitation of Ranbaxy management, I had met Mr. Atul Sobti, COO, and Mr. Singh in Delhi where they proposed to acquire 16% of my shares (with control premium) as well as make an open offer at Rs. 160 to minority shareholders. I had accepted the offer and we had an oral agreement followed by a handshake.
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Since then, the agreement was confirmed with several oral agreements, hand shakes, emails and personal meetings culminating in finalizing share purchase agreement, mutual release agreement, separation agreement, consulting agreement and escrow agreement. |
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The agreement was again confirmed by Daiichi management in August, 2008 as well as in a personal meeting at the Oberoi on November 13th, 2008. |
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Zenotech had always made it clear to both Daiichi and to Ranbaxy that it will not participate in any valuation exercise and that the Rs. 160 has been agreed to, based on open offer price of Rs. 160 by Ranbaxy that ended on January 30th, 2008. As a result, Daiichi and Ranbaxy conducted legal, business and technical due diligence culminating in a visit by a eleven member team from Daiichi to Zenotech in Hyderabad on December 11th and December 12th, 2008. |
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Daiichi and Ranbaxy management again met me on December 20th, 2008 in Taj Krishna, Hyderabad and wanted to buy out the whole 26% of my stake at Rs. 160 but without any control premium. I again agreed and shook hands. At all times, the open offer price to minority shareholders was supposed to be Rs. 160. All the documents were prepared over the holidays for signing on January 16th, 2009. |
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It is very evident that, Daiichi intended to close the deal and keep in touch with me through its personnel and has accordingly sent the documents, only after our express offer at Rs.160 per share.
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As things stood thus, in clear violation of the agreement arrived at, having the price fixed at Rs.160/- per share, for the reasons best known to Daiichi, the Board of Directors of Daiichi, as it transpired, met on January 16th , 2009 and decided to offer only Rs.114 per share to the share holders of Zenotech in the open offer. With a malafide intention Daiichi has been trying to negate a concluded contract to the detriment of minority share holders, which is unconscionable, unethical apart from being illegal and unsustainable. |
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Apart from concluded contract to buy the stake of the promoter at Rs.160, it is imperative that the Daiichi should give the open offer only at Rs.160 per share to the share holders in view of the mandatory nature of the SEBI (Substantial Regulations with Shares and Takeovers) Regulations, 1997. Beyond any part of doubt, Ranbaxy is a person acting in concert with Daiichi. Regulation (10) read with Regulation 14(1) mandates that the public announcement shall be made not later than, four working days of entry into an agreement for acquisition of shares or voting rights or deciding to acquire shares or voting rights excepting exceeding the specified percentage. In fact, Daiichi and Ranbaxy entered into a share purchase agreement on 11.6.2008. In the said agreement, it has been agreed that Daiichi will have the power to appoint majority number of Directors, which amounts to a takeover, making the Ranbaxy, a subsidiary of Daiichi. With the said acquisition and takeover, more than 15 % of stake in Zenotech has passed on to Daiichi through Ranbaxy, which again triggers the mandatory open offer vis-à-vis Zenotech, in as much as mere intention is sufficient. Daiichi has postponed the open offer till recently only with a view to getting over the stipulation with regard to 26 weeks’ period, which again is illegal and unconscionable. |
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Viewed from any angle, in view of the concluded contract between the promoter and Daiichi and also in view of the mandatory provisions of the SEBI Regulations referred to above, Daiichi ought to have made the public announcement for the open offer to buy the shares only at Rs.160 per share, as otherwise, it amounts to oppression and exploitation of the minority share holders. |
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As per Para 1.9 of PA |
As per Regulations |
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The negotiated price under the agreement
Referred to regulation 14(1) |
Omitted |
Agreed to pay Rs.160/- offered to promoters and minority shareholders. |
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Highest price paid by the acquirer or persons acting in concert (PAC) with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of Public announcement to shareholders of RLL ( 14-June-2008) |
Acquirer – N.A-
PAC omitted |
Acquirer – N.A- PAC – Rs.160 |
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The average of the weekly high and low of the closing prices of the shares of the target company on BSE during the twenty-six weeks preceding the date of the public announcement to shareholders of RLL (14-June-2008) |
Rs.113.62 |
Rs.113.62 |
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The average of the daily high and low prices of the shares of the target company on BSE during the two weeks preceding the date of public announcement to shareholders of RLL (14-JUNE-2008) |
Rs.103.51 |
Rs.103.51 |
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Highest price paid by the acquirer or PAC with him for acquisition, if any, including by way of allotment in a public or rights or preferential issue during the twenty six week period prior to the date of PA to shareholders of Zenotech ( 17-Jan-2009) |
N.A. |
N.A. |
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The average of the weekly high and low of the closing prices on shares of the target company on BSE during the 26 weeks preceding the date of PA to shareholders of Zenotech ( 17-Jan-2009) |
Rs.106.03 |
Rs.106.03 |
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The average of the daily high and low prices of the shares as quoted on the stock exchange on BSE during the 2 weeks preceding the date of PA to Zenotech shareholders ( 17-Jan-2009) |
Rs.109.52 |
Rs.109.52 |
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I, therefore, pray that the Hon’ble Board may intervene and secure the ends of justice, direct Daiichi to make public announcement for open offer by fixing the share value of Zenotech at Rs.160/- per share.
I, further pray that the Hon’ble Board may be pleased not to process and finalise the offer document to be submitted or submitted by Daiichi until a favorable ruling is giving protecting the interests of the minority share holders.
Thanking you,
Yours sincerely,
Dr Jayaram Chigurupati
Encl: emails exchanged (pages 8)
Share purchase agreement (pages 39)
Separation agreement (pages 7)
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