Tata plan to merge Metaliks runs into shareholder wall

In a sign of growing shareholder activism, minority stakeholders of Tata Steel subsidiary Tata Metaliks have forced the company to take their views on a resolution to merge the company with the parent in a meeting to be held tomorrow.

Already, the Maruti Suzuki's attempt to transfer its upcoming Gujarat plant to parent Suzuki met is being opposed by minority shareholders.

A section of the shareholders of Tata Metaliks had approached the Kolkata High Court demanding a stay of the court-convened meeting of the shareholders slated for tomorrow and dismissal of the scheme involving merging Tata Metaliks and its subsidiary Tata Metaliks Kubota Pipes with Tata Steel.

The court hasn't put a stay on Tuesday's meeting during its ruling on Friday saying its too late, but has directed Tata Metaliks to take separate voting of public shareholders and promoters and file a report with it.

"There has been a lack of promptness undoubtedly in the applicants approaching court as since February 12 till March 14 nearly a month has lapsed. It is on the verge of holding of meeting on March 25 that this application was sought to be listed. Notices have undoubtedly been issued and to stay the meeting at this stage would create havoc but without causing prejudice to any of the parties," Judge Nadira Patherya said in a judgement on Friday.

Minority shareholders have also approached Securities and Exchange Board of India (Sebi) contending that the Tatas are not taking the opinion of the minority shareholders despite a circular issued by the market regulator in May which said in para 5.16(a) that "the scheme shall be acted upon only if the votes cast by the public shareholders in favour of the proposal are more than the number of votes cast by the public shareholders against it".

Such votes, the circular noted, would have to be ensured through "voting by public shareholders through postal ballot and e-voting" in some specific cases including "arrangement involves the listed company and any other entity involving promoter or promoter group".

Apart from directing the Tatas to take opinion of the public shareholders, the court hasn't ruled on the merit of the petition, which demands that the scheme shouldn't be allowed as Sebi rules have been violated.

"A complaint has been filed by the applicants with Sebi, and Sebi as a watchdog is entitled to take steps in case there is violation of its circular. Accordingly, for the present no order can be passed on this application but this will not prevent the applicants herein from agitating the issues raised in this petition at the second stage when the scheme comes up for confirmation. It is made clear that none of the issues have been decided and the said issues raised are kept open," the judge said.

"We want the scheme to be squashed as it is bad in law as it doesn't follow the directive of Sebi which requires that views of minority shareholders would have to be taken and that too through e-voting or postal ballot, which would give opportunity to all minority shareholders to participate and not just those residing in and around the city where the company is registered," a minority shareholder associated with the application before the court told dna.

Tata Metaliks on its part has told Sebi and the court that compliance of paragraph 5.16(a) of the circular and taking views of public shareholders was not necessary.

This is in contrast to decision of Maruti Suzuki to seek approval of minority shareholders, as stipulated in section 188 of the new Companies Act, on the proposal to transfer Gujarat plant to parent, the shareholder of Tata Metaliks said.

Apart from the corporate governance issue, investors had earlier objected to the rationale of the merger saying cost savings investments like setting up a sinter plant, a coke oven battery and a captive power plant using waste heat would help turn around the company.

Tata Steel's group finance director Koushik Chatterjee, had argued that the merger was the last option as Tata Metaliks's business model has gone for a toss following the commodity boom.