Cadbury's minority share buyback plan runs into trouble

MUMBAI: The residual minority shareholders of Cadbury India are up in arms against the multinational’s move to buy them out through a special
resolution at the company’s extraordinary general meeting next month, at Rs 1,340 per share.

These shareholders together own around 2.4% in the company, and are planning to file an intervention petition in the Bombay High Court opposing the move. The resolution can be easily approved as the promoters need only a 75% majority.
After that, the company will have to seek the formal approval of the Bombay High Court for reducing the equity base.

"We are planning to file an intervention petition in High Court on behalf of investors once the resolution is passed," Hinesh Doshi, V-P, Investors’ Grievances Forum. "We have received from investors that Cadbury has filed a petition under Section 100 before the High Court, Mumbai for reduction of capital by paying off minority shareholders and extinguishing all their shares," he said.

Section 100 of Companies Act, which deals with special resolution for reduction of share capital says that a company limited by shares or a company limited by guarantee and having a share capital, may, if so authorised by its articles, by special resolution, reduce its share capital in any way. When contacted by ET, Cadbury India’s spokesperson said: "It is premature to comment on this."

According to lawyers familiar with the delisting process, several judgements including those of Bombay High Court have approved of companies buying out residual minority shareholders. These investors have never approached the Supreme Court. Lawyers say it was unlikely that the minority shareholders would succeed in the court in view of the settled legal position.

The EGM for the share buyback will be held on November 16. "Subject to confirmation by Bombay High Court, the paid up equity share capital of the company be and it is hereby reduced by paying off/returning to the holders of the equity shares (other than the promoters viz., Cadbury Schweppes Overseas and Cadbury Mauritius) a sum of Rs 1,340 per share," said the notice to shareholders.

Once companies get delisted, they fall outside the purview of capital market regulator — Securities and Exchange Board of India (SEBI). The ministry of company affairs is the nodal authority for all companies, listed and unlisted, and is also responsible for making amendments to the Companies Act. "This is an indirect way for compulsory buyback without shareholders consent,' says Mr Doshi.

"Why are delisted companies hell-bent on removing a few small shareholders?' asks Aspi Bhesania, a minority shareholder in Cadbury India.

RAKESH KUMAR, PGDM- IST SEM