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Sebi cracks whip on Gillette

Mumbai, July 5: The capital market regulator today froze a little over 55 per cent of the combined voting rights of Procter and Gamble and Saroj Kumar Poddar in Gillette India.

The stricture was passed as the promoters of the razor and blade maker had failed to comply with the June 3 deadline for listed companies to raise the minimum public shareholding to 25 per cent.

The promoters together hold 88.8 per cent in Gillette India and were required to dilute 13.8 per cent in the company to raise the public shareholding to the desired level.

Prashant Saran, whole-time member of the Securities and Exchange Board of India (Sebi), ordered a direct freeze of voting rights and corporate benefits such as dividend, entitlements to rights and bonus shares, and stock splits to the extent of the excess of proportionate promoter/promoter group shareholding in Gillette India till such time that they complied with the public shareholding rule.

Procter and Gamble holds 75.9 per cent in Gillette India. S.K. Poddar and his associates hold 12.9 per cent.

Under Sebi rules, the ratio of promoter and public shareholding must be 75: 25, or 3:1.

Since the public shareholding in Gillette is only 11.2 per cent at present, the voting rights of the promoters will be capped at three times that level — that is, 33.6 per cent.

That means the voting freeze on the Gillette India promoters will apply to the proportionate excess stake of 55.2 per cent. Under the formula enunciated by Saran, the voting freeze will apply to 47.18 per cent of P&G’s stake and 8.02 per cent of Poddar’s.

Saran has also prohibited the promoters of Gillette India from buying, selling, or otherwise dealing in the securities of the razor maker, either directly or indirectly, except for the purpose of complying with the minimum public shareholding norm.

Gillette India’s promoters and directors have also been restrained from holding any new position as a director in any listed company till such time that they comply with the public shareholding requirement.

The order said the action taken today was without prejudice to the right of Sebi to slap a monetary penalty, initiate prosecution proceedings, move the Gillette scrip to the trade-to-trade segment, exclude it from the futures and options (F&O) segment, or take any other action that the regulator might consider appropriate.

The order comes just two days after the Securities Appellate Tribunal (SAT) rejected Gillette India’s plan to raise public shareholding to the desired level because it termed the scheme dubious and ignored “all other perfectly executable methods suggested by Sebi in various circulars over the past few years”.

While dismissing Gillette’s appeal, the SAT also vacated that interim stay in its July 3 order and paved way for Sebi to take necessary actions against the company.

On June 4, Saran had slapped similar restrictions on the promoters of 105 listed companies that had violated the public shareholding rules.

Under the plan that the promoters had devised and the SAT rejected, Poddar — who currently holds 12.9 per cent in Gillette — would sell 4.9 per cent to P&G and cease to be a promoter. P&G, which holds 75.9 per cent in its subsidiary Gillette India, would subsequently offload 4.9 per cent to the public.

Since this was an inter se transfer of share among promoter entities, this stake transfer would not attract the provisions of the takeover regulation that would make an open offer to the public mandatory.

After the transfer, the Poddar Group’s holding would go down to 8.9 per cent and it would be classified as an ordinary public shareholder.

This plan had been rejected by Sebi earlier and SAT also saw no merit in the plan.

In his order, SAT’s presiding officer Jog Singh said Gillette India intended to “first violate the law” by raising the shareholding of the P&G Group substantially above the 75 per cent benchmark. Later, the P&G Group proposed to offer an “insignificant” 4.9 per cent of their shares to the public.

 
 
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