Overall it’s a good deal & win win situation for all.
My call here is that , SEBI should ensure that it’s a fair & transparent process, along with protection of minority shareholders & ensuring fair valuation & equity dilution ratio.
1 Like
Squeeze-Out
If what we are seeing is a Squeeze-out, does the amalgamation come under scheme of arrangement. There neither seems to be a Reduction in Capital nor the promoters have tried using compulsory acquisition mechanism.
AT TIMES SQUEEZE-OUT CAN BE VALUE ENABLING
I wish this is one.
Reference: Regulating Squeeze-Out in India
Dear sir
You have raised a valid point. Do remember that the all powerful SEBIs role for regulating & protecting minority investors & sebi is paid with taxpayers money.
Rajasthan global securities, HNIs ,AIF & PMS holders hold around 11 percent. None have raised any objections or clarifications. Further Accounts of 4 private entities are available, since inception, they are audited & taxes paid.
Globally MNCs have clean accounts & no window dressing is done unlike chor companies in india.
Ardian the owner of Expleo solutions,is Europe’s largest PE investor managing a string of 135 companies, including Expleo , along with managing Pension funds & other businesses.so don’t expect accounts to be fudged or inflated .I specifically mention this as a few boarders have raised concerns .
3 Likes
Where are the accounts of 4 unlisted cos available for a investor to examine?Did you have a look?
Accounts of all 4 Expleo private entities are not in public domain. They have been made available to the valuers. I presume these accounts will be made available to the shareholders prior to getting approval from the shareholders & SEBI.
Private unlisted cos have liberal auditing standards and auditors are never held liable as long as they have a comfort letter from the management.Europe,US and India have very low standards and private cos can get away with anything.
Even in this case the valuation of unlisted cos is done by one auditor while the listed entity is by another auditor.
SEBI always sleeps for years before crystallising action.No comfort.
Ardian is not the largest European pvt equity investor but comes lower down.
Investors should use their own intelligence to study the accounts and valuation reports.
1 Like
Hi,
Have been reading this thread but not gone thru expleo financials in detail. So apologies if I miss some details.
However I have some questions. If the valuepickrs can answer that will be helpful
- The only publicly listed entity is in india. Here the promoter shareholding is around 50 percent plus and is merging with other Indian entities where the promoter share holding is higher than 75 percent. On a weighted average basis promoter shareholding is going to increase post merger. So why does increased promoter shareholding seem to be an issue. As long as valuation is fair
2.On a longer term basis there is a bigger question. An alternate option could have been to delist expleo solutions in india and merge with other entities. The parent entity is unlisted. A lot of business is going to be won in the name of the parent entity and offshored to india hence margins are going to be capped.
How does having a listed company in india help the parent company ?
In my view india company should have been taken private. And eventually the European parent would have been listed in the future giving the pe guys an exit.
What am I missing in this counter argument?
Regards
The following are extracts about Private equity in general.
Private equity firms are, as their name suggests, private — meaning they’re owned by their founders, managers, or a limited group of investors — and not public — as in traded on the stock market. These organizations buy companies that are struggling or have growth potential and then try to repackage them, speed up their growth, and — theoretically — make them work better. Then, they sell them to another firm, take them public, or find some other way to offload them.
The private equity’s No. 1 priority isn’t the long-term health of the companies it buys — it’s to make money, and to make money fast.
Reference for the above — What is private equity, and why is it killing everything you love?
Its bad reputation comes from large private equity firms aiming to create value from established businesses, which often involves restructuring and job losses. The smaller private equity firms are focused on helping promising companies grow.
India: A New Method of Minority Squ(ease) Out
On February 3, 2020, the Ministry of Corporate Affairs notified sub-sections (11) and (12) of section 230 of the Companies Act, 2013 (the "Companies Act ") along with also notifying the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020 and the National Company Law Tribunal (Amendment) Rules, 2020 (collectively, the "Takeover Notification "), which would enable shareholders of unlisted companies holding at least 75% securities (including depository receipts) with voting rights (the "Acquiring Shareholder ") to acquire the remaining minority shareholders (the "Minority Shareholders ") pursuant to a court-approved compromise or arrangement that includes a takeover offer.
Reference for the above — A new method for minority squeeze in India
What can be done?
Source — https://lawbhoomi.com/minority-squeeze-out-protection-of-minority-interest-under-company-law/
-
Minority Shareholder Voting
Since squeeze out is usually done on the decision of the majority, the minority shareholders must also be given equal power to regulate upon such matters. They must be given equal voting rights and must ensure that “majority of the minority” votes are secured in situations that can affect them. It must be ensured that such decisions of the minority are not in any way influenced by that of the majority. -
More Power for SEBI
Even though SEBI has no supervisory role in the case of unlisted companies or a strong power to restrict or prohibit a value- reducing squeeze out, they display a sense of activism in the protection of minority interests. For example, in the Elparo Case [10], the stock exchange authorities refused to accept the squeeze-out thereby making the company withdraw its proposal on the same. Keeping this in mind, the regulatory authorities should be given stronger power to restrict squeeze-outs and play a more active role in the preservation of minority interests, through formulation, implementation, and regulation of rules that safeguard minority interests. - Price discovery mechanisms can be implemented for determination of share prices during minority squeeze-out, so that the prices determined are fair to the minority.
-
Independent Board Approval ( Source — Squeeze Outs: Analyzing the Cadbury Decision - IndiaCorpLaw )
In India, squeeze outs do not require the approval of
independent boards of directors. This could be useful as independent boards
carry the burden of examining whether transactions are carried out on an “arm’s
length” basis. Additionally, the increasingly stringent rules governing
related-party transactions under the new company law do not apply to squeeze
out transactions thereby denying that protection to minorities.
Not disputing it.All the more reason to see if the unlisted pvt companies deserve the valuation being offered.
You are missing so many things.
1)And eventually the European parent would have been listed in the future giving the pe guys an exit.
which parent are you referring?
2)The only publicly listed entity is in india
Ardian is a PE investor with investments in over a 100 cos.How do we know how many are listed elsewhere.
3*)On a weighted average basis promoter shareholding is going to increase post merger.*
What does holding percentage got to do with merger/valuation/EPS?
4)A lot of business is going to be won in the name of the parent entity and offshored to india hence margins are going to be capped.
Already as per disclosure 32% of the merged entity’s turnover will be from group cos and the a large % of the rest may have been also by the groups links as it has been invested for over 3 years.
5)In my view India company should have been taken private.
They need resources to pay the existing shareholders while this is a no cash merger.
Dear unknown investor
Promoters now hold 56.17 percent stake in Expleo solutions which will be raised to 71.05 percent post amalgamation of 4 private entities of Expleo group, where the promoters hold 100 percent stake.
Now , Ardian is not like the Tatas who run their companies for eternity. Ardian typically ramps growth, profits & assets over a short period of time & either continues to run the company or sell it to an MNC on the prowl at a substantial premium.
So it doesn’t make sense to delist Expleo solutions.
The parent will raise stake, to 75 percent thru 2 buybacks ,as also recruiting IT professionals from India , also key personnel will be given ESOP in the listed entity, while the unlisted entity ( erstwhile SQS Germany) personnel will be given performance bonus & salary hikes in lieu of ESOPS.
As & when it’s time to sell out to an MNC on the prowl, both the listed & amalgamated entity, Expleo solutions with 75 percent promoter stake as well as the unlisted entity ( erstwhile SQS Germany) with 100 percent promoter holding will be sold , under Expleo brand umbrella.
Of course it may or may not happen,I just made the point to highlight that Delisting Expleo doesn’t make sense, as of now.
Of course, Dividends may follow, as per SEBIs mandatory dividend distribution policy, as well as buybacks to raise promoter stake to 75 percent.
Now as I said, the equity dilution ratio , based on valuation & share exchange between transferee & transferor ,as well as the accounts , cash & assets of the 4 private entities is SEBIs job as a regulatory authority ,as also protection of minority investor rights .
1 Like
What I have mentioned above is from the business perspective of the parent. Minority shareholders may have a perspective of delisting at an astronomical price or getting the equity dilution ratio to a lower level.
Both the listed entity & the nonlisted entity has been run seamlessly under the SQS brand umbrella for past several years & now being run under Expleo brand umbrella. The listed entity gets direct business, as well as sourced from the parent . There is also outsourcing of business from the unlisted entity to the listed entity on a well defined revenue sharing formula, which has been running seamlessly even at present.,
Ardian as PE investor manages a string of 135 companies along with pension funds, wealth management , running an airport as well as various businesses.
Now coming to the listed company, Expleo solutions, the promoters are Assystem technologies SA France ,an unlisted entity which is 50 percent owned by Assystem SA France & the balance 50 percent with Ardian . The same promoter holding holds true for the unlisted entity ( erstwhile SQS Germany)at 50 , 50 .
1 Like
Thanks Balki, atleast you understood my question or point of view,
Since Ardian is a PE investor Its objective is to unlock as much value as possible and get some exit from public markets.
A lot of value is still in the European entities of the expleo and sqs BFSI group. Listing the Indian entity does not do anything for unlocking that value unless it leads to listing of the Holding company of expleo ( In which Ardian is a promoter investor)
Hypothetically if Accenture USA were unlisted with a listed indian subsidiary then, it’s like saying you will not list the Accenture USA entity to unlock value.
The simple point here being: What’s the plan of the PE INVestor to unlock value in the other european entities in the group.
1 Like
If I have read it correctly Ardian holds 68% and Assystem SA holds 32% in Expleo France and the Expleo Germany being a100% subsidiary they hold 68% and 32% there too.
Yes you are right, I apologise for the error on my part.
Hi All, good to see the discussion going on, will keep my comments short, accounts of ESL is fine, not found any misleading or doubtful figure , accounts of 4 pvt company is available in public domain, not expecting huge jump in eps, all seems good to me. I am not at all expecting any dividend or bonus issue in coming year, Aerospace and defence is sector I am looking at for this company. Insider activities started in May month onwards, even invested, I shall make a complain in scores though. BSE also enquired via letter about surge in trading, surprisingly cs who is well experienced said no info is hidden in reply.
1 Like
[quote=“sidbest, post:228, topic:1084”]
accounts of 4 pvt company is available in public domain,
Where is it available? Need to look at the balance sheet and cash flow.
The market has taken note of the potential of this scrip , post amalgamation, with IT sector firing on all cylinders, one can expect projected EPS of ₹125 & ₹250 for coming 2 years , based on synergies & uptrend in IT sector. My views only. Please do your due diligence before buying & selling.
1 Like
It didn’t immediately hit UC. It seems it’ll probable settle around these levels before traders/investors have more clarity on road ahead.
I think we are all unnecessarily complicating the issue. The communication from the company is fairly clear - it is EPC accretive upto 16.6% or so. There will be large synergies in operations going forward. There is no overhang of unlisted entities getting business instead of the listed entity anymore. This is classic pareto principle at play - we have 90% of the (important and relevant) information, and the remaining 10% frankly doesn’t matter much. We can keep speculating about every last detail of how the swap ratio was arrived at, but it is not important since it is EPS accretive which means that it is a fair deal for the listed entity.
The market has recognized the benefits and given its verdict.
7 Likes