Wipro Ltd is demerging its non-IT businesses including Wipro Consumer Care & Lighting (including the furniture business), Wipro Infrastructure Engineering (hydraulics & water businesses) and the medical diagnostic products & services business (through its strategic joint venture), into a separate company, to be named Wipro Enterprises Ltd, which will be an unlisted firm. This will make Wipro an IT-focused company.
In the fiscal year 2011-12, the company’s IT business contributed to 86 per cent of its consolidated revenues of Rs 37,404 crore and 94 per cent of its operating profit. The demerger will allow both the firms to pursue their individual growth strategies.
“I am confident that the demerger will enhance value for our shareholders and provide fresh momentum for growth. Each of our distinct businesses is best of breed in its respective industry, and we are committed to both the businesses,” said Azim Premji, chairman of Wipro.
The restructuring will not change the management of the respective businesses and the board of Wipro Ltd will remain unchanged. The Wipro brand will be jointly owned by both the companies.
Azim Premji will remain executive chairman of Wipro Ltd and will also assume the position of non-executive chairman of Wipro Enterprises.
“Creating a technology-focused company will allow us to better serve the needs of our customers, and accelerate investments necessary to capitalise on market growth opportunities,” said TK Kurien, CEO, IT business, and executive director of Wipro Ltd.
Wipro scrip rose 3 per cent and was quoting at Rs 361.65 a share during mid-day trades on the BSE in a flat Mumbai market on Thursday.
“The businesses of Wipro Enterprises are diverse and this demerger gives them an opportunity to pursue their independent growth plans. I believe the demerger scheme reflects a high standard of governance, transparency and fairness for all stakeholders,” said Suresh Senapaty, CFO and executive director of Wipro Ltd.
Wipro has constituted a special committee comprising its board of directors to oversee the planning and execution of the demerger. The special committee comprises independent directors N Vaghul, Bill Owens and MK Sharma. The appointed date for the demerger is the opening of business hours on April 1, 2012, and the demerger is expected to be completed by the next fiscal year.
According to the currently proposed restructuring scheme, resident Indian shareholders of Wipro Ltd on the record date can choose from multiple options – they can either hold shares of the new firm or swap those for more shares of Wipro Ltd.
Indian shareholders can opt to receive one equity share with face value of Rs10 in Wipro Enterprises for every five equity shares with face value of Rs 2 each in Wipro Ltd, held by them, or they can receive one 7 per cent redeemable preference share (maturity of 12 months and shall be redeemed at a value of Rs 235.20) of Wipro Enterprises with face value of Rs 50, for every five equity shares of Wipro Ltd that they hold or they can exchange the equity shares of Wipro Enterprises and receive as consideration the equity shares of Wipro Ltd held by the Premjis, the promoters. The exchange ratio will be 1 equity share in Wipro Ltd for every 1.65 equity shares in Wipro Enterprises.
The demerger will also help Wipro Ltd increase its public float to meet the 25 per cent minimum public holding by mid-2013. The promoters currently own 78 per cent of Wipro, which must shrink to 75 per cent, either through share sale or dilution of holding through fresh issue. If public shareholders opt for the third option, they can swap the Wipro Enterprises shares they are entitled to, with the shares owned by the Premjis in Wipro Ltd.
Non-resident shareholders (excluding ADR holders) and the ADR holders on the record date will also be entitled to similar options as part of the demerger, either to receive equity shares of Wipro Enterprises or to exchange the Wipro Enterprises equity shares that they are entitled to and receive the equity shares of Wipro Ltd held by the promoters in the same ratio (see above).
According to the currently proposed restructuring scheme, the equity shares of Wipro Enterprises Ltd that the ADR holders would otherwise be entitled to receive, shall be compulsorily exchanged for the equity shares of Wipro Ltd, held by the promoters. Subject to approvals/exemptions, the ADR holders will be issued additional ADRs representing the Wipro Ltd equity shares that they would otherwise receive pursuant to the scheme of arrangement.
Where such approvals/exemptions are not forthcoming or are not received prior to the record date for the demerger, the depository with respect to the ADRs will sell the equity shares of Wipro Ltd that ADR holders would otherwise be entitled to receive and distribute the proceeds thereof to the ADR holders.
The valuation process was jointly undertaken by Deloitte Touche Tohmatsu India Pvt Ltd and N M Raiji & Co while fairness opinions were provided by JM Financial Institutional Securities Pvt Ltd and Citigroup Global Markets India Pvt Ltd. JM Financial also acted as the sole financial advisor to Wipro Ltd.
(Edited by Sanghamitra Mandal)