The Jain family, who runs the Inox Group, has sealed the two-year-old corporate takeover battle with Anil Ambani-led Reliance ADA Group for the public-listed multiplex chain operator Fame India Ltd. Jains have raised their holding in Fame to 72 per cent through two public-listed companies, after subscribing to almost the entire lot of fresh shares allotted in the recent rights issue besides buying afresh from the open market.
In the latest transaction, Gujarat Fluorochemicals Ltd (which also happens to be the parent company of Inox Leisure Ltd, acquired 3 per cent while Inox Leisure bought 0.75 per cent to take its total holding to 69.1 per cent in Fame India. Gujarat Fluorochemicals owns 65 per cent in the public-listed Inox Leisure while the promoters own 70 per cent stake in Gujarat Fluorochemicals.
Reliance ADAG, which held around 35 per cent stake in Fame India before the rights issue has seen its holding shrink to around 22.25 per cent as per VCCircle estimates, virtually taking out the power to put spanners over board decisions. However, one repercussion of this development is that two business groups now control around 93 per cent of a public-listed company.
Fame had come up with a rights issue where it raised around Rs 89 crore ($17.5 million) by issuing 58 new shares for every 100 shares held by its existing shareholders. In the process, it issued 20.2 million new shares. The issue was at Rs 44 a share, almost at the same level with the ruling market price last month.
Shareholding disclosures indicate that Reliance ADAG did not participate in the rights issue which would have required it to bring in around Rs 31.5 crore to fully subscribe to the fresh shares it was entitled to. Had it gone ahead and put in fresh money, Reliance ADAG would have retained its 35 per cent holding, giving it a better leverage.
Fame India scrip is currently trading at Rs 66 on the BSE, having shot up over 50 per cent in the past two weeks and recording more than 100 per cent jump, compared to the price at which it was quoted at the end of December 2011.
From here, there are three ways to reach an endgame. Inox may strike a deal with Reliance ADAG, buying it out to get a clear control over Fame India (and then divest the stake in the public market or through an IPP or merge Fame India with Inox Leisure).
A merger looks a more probable scenario but the Jains would be careful in doing so unless they acquire Reliance ADAG’s 22 per cent in Fame as Reliance ADAG still owns a small minority stake in Inox and a merger may yet give it the leverage to pick on Inox Leisure.
In other scenarios, Reliance ADAG may simply start selling its stake in the market (and most likely book a loss in the Fame adventure) or yet spring a surprise by acquiring Inox and having the last laugh. Although, to be fair, the latter looks like a far-fetched possibility and might be tough even from a regulation perspective, especially when it comes under the scanner of the Competition Commission of India.
The takeover drama might have ended but the audience is waiting for the post-show credit!
The Fame Saga
The battle for Fame India started in February 2010 when public-listed Inox Leisure acquired Fame India promoters’ 43 per cent stake for Rs 66.48 crore through bulk deals. The deal made Inox a clear No. 2 in terms of number of screens across multiplexes in India. The Big Cinemas of Reliance ADAG is the largest player while Inox (along with Fame) overtook PVR.
The deal came soon after PVR announced that it would be acquiring 26 screens operated by the DLF subsidiary DT Cinemas in a Rs 60 crore stock-cum-cash deal. That deal, however, did not fructify.
Gujarat Fluorochemicals (GFL), the parent firm of the public-listed Inox Leisure, brought in the initial money to fund the entire transaction through a shareholder loan. This was the second acquisition by Inox after it acquired Calcutta Cinema Pvt Ltd, which ran its business under the brand 89 Cinemas. The acquisition took place in 2006.
Inox moved fast and ring-fenced a looming threat from Reliance ADAG by increasing its holding in Fame India to over 50 per cent by purchasing additional 7.2 per cent through open market transactions.
In a parallel development, Reliance Capital Partners, which held as much as 9 per cent stake in Inox Leisure, cut its holding in Inox Leisure and bought 3.4 per cent stake in Fame India from the open market. This battle cry also made it public that Reliance ADAG had a revived interest in buying Fame India. It had initially shown its interest in a deal way back in 2007.
Reliance ADAG alleged circumvention of regulatory norms in the original deal between Fame India promoters and Inox, and claimed that it had offered a higher price for acquiring Fame which was spurned by the Shroffs, the erstwhile promoters of Fame. According to Reliance ADAG, it had offered Rs 80 a share to Shroffs as against Rs 44 a share at which Inox picked the initial chunk of shares.
Meanwhile, Reliance Capital Partners, a group firm of Reliance ADAG, hiked its holding in Fame India to 7.6 per cent through open market purchases. It also continued to add more shares to its holding.
This was a bold move given that Inox had already reached a comfortable level by crossing the 50 per cent holding mark.
Reliance ADAG managed to raise its holding significantly with an attractive open offer at Rs 83.4 a share, as against Rs 51 offered by Inox. Besides the holding of around 11 per cent before the voluntary offer and the 19 per cent stake acquired in the offer, Reliance ADAG also bought more shares through the open market to take its total stake to around 35 per cent. Over two-third of this was purchased for over Rs 80 a share.
Given the latest rights issue, Inox has become a clear winner, buying the bulk of its 70 per cent stake at Rs 44 a share – much lower than Reliance ADAG’s share purchase.
It is a different point altogether how the retail shareholder, with whatever little he/she owns now in Fame India, does benefit from this takeover drama.
M&A Lab : The Battle For Fame