Minority has its way, shares of Cadbury to be revalued

Chocolate maker Cadbury agreed to provide the data required for revaluation of its shares to an independent valuer in the Bombay high court on Monday.

The company will provide information including financial projections to Ernst & Young (E&Y), allowing it to revalue the shares in about 3 weeks, and move closer towards resolving the issue for about 8,000 minority shareholders.

The two parties may accept the new valuation E&Y arrives at, at the next hearing to be held on Friday, sources said.

Cadbury had delisted the company in 2003.

However minority shareholders had held out stating that the price of `500 per share was inadequate.

A number of shares were subsequently bought back at higher and higher valuations with the company valuing its shares at Rs1,340 on September 30, 2009.

Minority shareholders aided by investor associations such as the Investors’ Grievances Forum continued to hold out.

Subsequently, the Bombay high court appointed E&Y to value the shares which held the shares to be worth around Rs1,740.

A portion of minority shareholders continued to hold out for higher valuations, protesting that the company was not valued while taking into account future growth.

The discounted cash flow (DCF) method, which would have accounted for future growth was not used since Cadbury did not provide financial projections, they said.

Also E&Y’s valuations were made taking July 31, 2009, as the cut-off date. Minority shareholders argue the date should have been September 30, which had been used by the earlier valuation done by the company, pegging the share at Rs1,340.

The company has subsequently offered up to Rs1,900 per share.

Minority shareholders had protested that the previous valuations was based on incomplete data, and on July 1, the court asked the company to consider the DCF method.

There have been cases where companies have got the upper hand.  In April 2009, the Bombay High Court ruled in favour of Sandvik Asia, allowing it to cancel shares held by minority shareholders by making a payment to them.

Other cases in which minority shareholders have been at odds with a delisted company include those involving Finnish company Wartsilia India and Pharmaceutical company Organon India.