London, May 4: The controversial takeover of Essar Energy has been pushed to the brink after an 11th-hour change to takeover rules by the stock market regulator.
The Financial Conduct Authority (FCA) last week raised the investor approval threshold from 75 per cent to 80 per cent where a controlling shareholder bids for a company. The move threatens to upend a hostile offer by the billionaire Ruia brothers, Prashant and Ravi, to buy the shares in the Indian power and mining giant that they don’t already own for 70p each.
The offer is one-sixth the price at which the Ruias floated the shares in London four years ago. Minority investors such as Standard Life have pledged to vote against it.
Last month the Association of British Insurers (ABI), a trade body for large investors, wrote to the FCA urging it to push through the new rules. Essar’s independent directors have also urged shareholders to vote no.
The Ruias founded Essar and still own 78 per cent of its stock. The FCA has not clarified if its new rules apply to the Essar takeover. If they do, the Ruias will now need to secure approval from about 15 per cent of the minority investors. Without the rule change, minority investors have no power to block the offer because of the Ruias’ controlling stake. The first of two deadlines for the shareholder vote is this Friday.
Recently, investors in the company had appealed to the Indian and British governments to intervene to prevent a forced takeover at a price they claim undervalued the company.
Robert Hingley, director of investment affairs at the ABI, wrote to India’s high commissioner in London Ranjan Mathai and British business minister Vince Cable regarding the issue on April 23.
In his letter, Hingley said the forced delisting of Essar Energy would cause “real damage to the integrity of the UK market and to the reputation of Indian companies more generally.”
Minority shareholders have also hired US law firm Skadden Arps to advise them.
Essar Energy’s business interests span power and oil sectors in India.