Update: In a disclosure made by Zandu to NSE today, Emami and persons acting-in-concern sold 18.8% shares in Zandu, reducing their stake from 72.8% to 54% now.

Previous Story: In a surprise move, FMCG player Emami Ltd, owner of brands such as Navratna oil and Boroplus cream, and its promoter group have sold as much 16% (out of over 70% holding) stake in Zandu Pharma over the last one week, just days before the restructuring of the two firms. Only last year, Emami was embroiled in a fight with one of Zandu’s co-promoters to gain control over the maker of brands like Zandu balm.

Kolkata-based Emami Ltd acquired 72% stake in Zandu Pharmaceutical Works for reportedly Rs 750 crore in October 2008.

What makes last week’s selloff particularly interesting is the price at which the shares were sold, an average Rs 6,520/share netting around Rs 85 crore. Just to rewind a bit, Emami had originally acquired a 23% stake from one of the co-promoters of Zandu, Vaidyas, at Rs 6,900/share (including a non-compete fee) and had later offered Rs 7,315/share to the other shareholders. But, it had to revise the offer price significantly to around Rs 16,500/share after the other co-promoter Parikhs were not willing to sell at a low price.

With the share sale now, Emami has taken a haircut of over 50% in its one-and-half-year investment. One wonders if this move was aimed at freeing up some of its pledged shares ahead of corporate restructuring. As of September 31, 2009, nearly 1.69 lakh shares of Emami were pledged. It could be that the FMCG firm is looking to redeem it ahead of the share swap for the restructuring.

Under the restructuring plan, the FMCG business of Zandu Pharma is to be demerged and amalgamated with Emami. In addition, the other real estate business of Emami will be demerged into a separate firm Emami Infrastructure. Shareholders of Zandu will get 14 shares of Emami for each share held in Zandu that would continue to hold non-core real estate assets of the company and would continue to be listed as a realty firm.

Moreover, since Emami group holds stake in Zandu through both Emami Ltd and Emami Real Estate (which is to now become Emami Infra), post this twin demergers, Zandu Realty Ltd will become a subsidiary of Emami Infra instead of Emami Ltd.

Given that Zandu stock has been pretty volatile (the stock price has more than halved after hitting 52-week-high in September 15), there was some arbitrage opportunity before the record date for merger plan, December 24.

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