07.03.2013
Azim Premji, majority shareholder of India based information technology (IT) consulting and outsourcing service Wipro, has been in news for his philanthropic activities and his concerns for the weaker sections of the society. But now some analysts are crying foul over the short shrift given by his group to the weaker sections of corporate world, the minority shareholders.
Wipro has approved a proposal to hive off non-IT business into a privately-owned company. The unlisted firm will be called Wipro Enterprises (WEL) and include Wipro Consumer Care and Lighting, including the furniture business, Wipro Infrastructure Engineering and medical diagnostic product and services business.
Wipro Enterprises has been valued by market participants at between Rs 10,000 crore and Rs 11,000 crore. Wipro’s minority shareholders will be issued shares of the unlisted company. The Indian shareholders have two options. Either take one equity share of the new entity for every five shares of Wipro or take one 7 per cent redeemable preference share of WEL for every five shares of Wipro. Each preference share will have a maturity of 12 months and can be redeemed for Rs 235.20.
Raising corporate governance issues over the WEL spinoff, there are charges that the move is unfair to minority shareholders, who were presented with a Hobson’s choice.
The red flag is over both the content of the proposal as well as the process adopted.
According to a recent circular issued by the Securities and Exchange Board of India (Sebi), two-thirds of minority shareholders should have supported the proposal.
One of the main objections to the process adopted for the ratification of the spinoff proposal is that shareholders had to be either present in person or send a proxy to Bangalore. This was a huge setback for minority shareholders. The company has 21.7 percent minority shareholding. The step inflicted financial burden on the minority shareholder and resulted in disenfranchisement for many of them. This meant only a small percentage of minority shareholders were able to vote on the spinoff proposal at the meeting held in Bangalore in December 2012. In fact, only about a fifth of the 21.7 percent minority shareholders voted. According to a recent circular issued by the Securities and Exchange Board of India (Sebi), two-thirds of minority shareholders should have supported the proposal. To be fair to Wipro, it voted on the proposal much before this circular was issued. But keeping in mind the concerns being raised on corporate governance issues, it could arrange for recasting of votes, analysts have opined.
Another objection is to the fact that minority shareholders were forced to choose from between holding equity shares in a private, non-publicly traded WEL, or to compulsorily hold redeemable preference shares in the non-public company. Thus, the minority shareholder had no option but to accept the exchange offer at the value determined by Wipro.
Wipro has done everything by the book but it is the spirit that is being questioned. The minority shareholders who stuck with the company when it needed their support are now being cast away. They will be denied a fair share of WEL growth story from here on. Some analysts have questioned Wipro’s sudden distrust of the market. If the parent company could perform on the bourses then why not give the new company, minority shareholders and markets a chance. The non-IT business of Wipro may be miniscule compared to IT business but has clocked higher growth.
Wipro’s non IT segment, WEL, which is proposed to be made private, has grown revenues and EBITDA at 33 percent and 26 percent respectively. This is 27 percent faster in revenues and 13 percent faster in EBITDA than Wipro’s IT segment, the segment that will remain public. The minority shareholders and Indian public must get a chance to enjoy the fruits of the faster growing non-IT business. This can be done by listing WEL on bourses, whose shares should remain freely tradable.
Powerful managements, like Caesar’s wife, should be above suspicion. The minorities in stock markets need affirmative action as much as in any other sphere of life.
by Ashutosh Misra
