Hedge Fund Gets Sterlite To Drop Its Restructuring Plans

Sterlite Industries, the Indian subsidiary of the UK-based Vedanta Resources has decided not to go ahead with its proposed restructuring plans. In an urgent meeting of Board of Directors today, to review the proposed restructuring scheme, the company has finally deferred its restructuring plans due to the “global financial turmoil”.

This move from the management of the company comes in after reports which suggest that activist investor TCI, which owns about 2.01% in Sterlite was exploring legal options against the company after talking to its various shareholders. Christopher Hohn led TCI alleged that the proposed restructring plan would benefit the promoters and will go against the interest of minority shareholders. This set alarm bells ringing for the metals major because TCI has a reputation for aggressive shareholder activisim. The London based hedge fund has in the past forced the resignation of the CEO of Deutsche Bourse after he refused to abandon his plans to take over the London Stock Exchange. It also defended the rights of Arcelor Brasil’s minority shareholders, causing Mittal to raise its offer price more than 55% in Mittals unsolicited takeover offer for Arcelor.

Sterlite's Reorganisation Plans

Earlier this month, Anil Agarwal-led Vedanta Resources had announced a reorganisation plan, under which Sterlite Industries would demerge its aluminium and energy businesses to Madras Aluminium Company (to be rechristened as Sterlite Aluminium).Also, Sterlite would issue one equity share in exchange for one share in the Zambian copper entity, Konkola Copper Mines. Under the restructuring, promoters holding in Indian assets would have gone up, while small investors would have got a 21.44% in Konkola Copper Mines.

The proposed restructuring plan was taken negatively by the investors on the grounds that it is skewed against minority shareholders , and increasing the interest of the promoters.In its latest communiqué to the stock exchanges, the company said it is “committed to simplifying and streamlining the Group Corporate structure in the interest of all shareholders.”

Shares of Sterlite Industries jumped as much as 15 per cent in afternoon trade on the domestic bourses following Vedanta Group's decision to defer restructuring plans due to the global financial turmoil.

Similar movements were witnessed on the National Stock Exchange where the scrip touched an intra-day high of Rs 518.80, up 15.44 per cent from yesterday's close.