The Securities and Exchange Board of India (Sebi) and exchanges have given a conditional go-ahead to the $23 billion merger deal between Idea Cellular Ltd and Vodafone India Ltd, subject to the outcome of an ongoing probe by the regulator on the allegation of purchase by Idea of its own shares just prior to the merger announcement and approvals from public shareholders and the National Company Law Tribunal (NCLT).
In fact the conditional go-ahead is just to enable the duo to apply for approval in NCLT. The ball is completely now in NCLT’s court and the outcome of SEBI investigations.
The deal was announced in March and recently got clearance from the fair trade regulator CCI. But CCI had not raised any issue on this share purchase by Idea or neither had waited for SEBI probe outcomes while considering the case and it is also not known if Idea had placed these facts before CCI or not.
In their “no-objection” letters on “draft composite scheme of amalgamation and arrangement among Vodafone Mobile Services, Vodafone India and Idea Cellular and their respective shareholders and creditors”, the BSE and NSE said that all the conditions put forth by the regulator need to be placed before the NCLT while seeking its approval.
The “no-objection”, as per Sebi’s regulations, will enable the companies to file the draft scheme with the NCLT.
On the draft scheme, Sebi said it had received a complaint alleging that one of the promoters of Idea Cellular had purchased 0.23% shares of the company before the announcement of the draft scheme of amalgamation and these transactions by the purchasers were in violation of securities laws.
“The said allegations are being examined by Sebi,” the regulator said.
In this respect, the purchasers have submitted a voluntary undertaking not to dispose of these shares till further directions of Sebi and any liability eventually held to be valid against the purchasers shall be borne by them.
Idea has also submitted a voluntary undertaking, stating that it will comply with the directions of Sebi in respect of the ongoing examination. It has also undertaken that any liability eventually held to be valid against it shall be borne by Idea.
Sebi has also received a complaint about alleged violation of takeover norms as the shareholding of Idea would increase from about 21% to about 26% pursuant to the scheme. “The acquisition pursuant to draft scheme of arrangement is exempt from the obligation to make an open offer... If the acquisition is pursuant to a scheme of arrangement, inter- alia, including amalgamation, merger or demerger, pursuant to an order of a court or a competent authority under any law or regulation, Indian or foreign. Thus, the said exemption is applicable only if NCLT approves the draft scheme,” Sebi said.
The regulator further said an “abridged prospectus” about the deal will need to contain a risk factor (at number one) detailing the risks associated with the outcome of the examination by Sebi of the allegations in the complaint. The company will need to ensure that the scheme clearly provides for voting by public shareholders and that the scheme of arrangement is acted upon only if the votes cast by the public shareholders in favour of the proposal are more than the number of votes cast against it.
The explanatory statement to the notice to shareholders need to disclose prominently that Sebi is examining the allegations with regard to transactions done by the purchasers in the shares of Idea before the announcement of the scheme.
“All the above facts shall be brought to the notice of NCLT,” Sebi said. It also asked the company to ensure that additional information, if any, submitted after filing the scheme with the stock exchanges, are displayed from the date of receipt of this letter on the website of the listed company. The regulator asked Idea to incorporate the observations of Sebi and exchanges in the petition to be filed before NCLT and the company is obliged to bring the observations to the notice of NCLT.
In March, Vodafone India and Idea Cellular announced the merger of their operations to create the country’s largest mobile phone operator worth more than $23 billion with a 35% market share. As part of the proposal, Vodafone India will initially hold 50% stake in the merged entity. Later, the British firm will own 45.1% of the combined entity while the Aditya Birla Group, Idea’s parent company, will hold 26% after paying Rs3,874 crore for a 4.9% stake. The remaining 28.9% will be held by other shareholders. BSE and NSE said they reserve rights to raise objections at any stage if the information submitted to them is found to be incomplete, incorrect, misleading, false or for any contravention of rules and regulations.
The validity of this “observation letter” shall be six months from 4 August 2017, within which the scheme shall be submitted to the NCLT,” the exchanges said. Further, Idea would have to submit a copy of scheme as approved by the NCLT to the exchanges, submit the result of voting by shareholders for approving the scheme; statement explaining changes, if any, and reasons for such changes carried out in the approved scheme from the draft scheme; and status of compliance with the observation letter of the bourses.
The deal may be delayed in getting regulatory approvals as it seems now, said one industry observer. The deal has 18 months to complete and get all the approvals from March onwards this year.