Helios & Matheson’s (H&M) $19 million cash deal to acquire vMoksha, which had sent its share price soaring past Rs 225 last year, is getting curiouser. H&M omitted to tell stock exchanges that the deal has gone sour after Rajeev Sawhney, vMoksha’s founder, raised several serious issues and objections. Early this year, Pawan Kumar (former chief of DSQ Software) who was vMoksha’s other partner sold his stake to Sawhney and stepped into Ramesh Vangal’s shoes at Scandent Solutions. Only last week, H&M informed stock exchanges that it had initiated arbitration proceedings regarding the vMoksha deal. While investors continue to remain clueless about details, Rajeev Sawhney has contested H&M’s claims. His letter, copied to regulators and stock exchanges, indicates that H&M’s efforts to invoke arbitration began only on February 10, 2006, after the failed deal became public. Investigations in this case are likely to revolve around a $13.5 million loan taken by vMoksha on the sole authorisation of its former chief, Pawan Kumar, from State Bank of Mauritius. The money was transferred to H&M, allegedly against allotment of preference shares to vMoksha’s promoters. The loan was allegedly taken without Rajeev Sawhney’s knowledge or consent, but curiously enough, backed by the personal guarantees of H&M’s Chairman and its Managing Director. Sawhney has sent all documents and objections to various regulators and contends that there is no case for arbitration since the deal has lapsed. This raises serious questions about the nature of the ‘‘all cash’’ vMoksha deal and the information provided to H&M’s public shareholders. Stock exchange officials say that they are awaiting answers from the H&M management. This case could turn into a test of the efficacy of the recently tightened Clause 49 of the Listing Agreement of stock exchanges. Corporate India will be watching to see how capital market regulator and the bourses treat serious disclosure lapses and whether there are any consequences to wrong or incomplete disclosure.
Market savvy
The brewing battle between Helios & Matheson (H&M) and Rajeev Sawhney over vMoksha has brought to light several interesting facets of its operation, through a due diligence report by Pricewaterhouse Coopers (PWC). We learn that H&M started life in 1991 as a money changing company named Express Financial Exchange Pvt Ltd. It changed its name and switched to software development in time to catch the dotcom boom in 1999, raised public money, got listed and quickly set up several international subsidiaries. Yet, PWC says it could obtain only sketchy details about its contracts and income recognition. The report further says that 82 per cent of the promoter shareholding (3.6 million shares of G. Annapurna and Padmaja) is pledged with Bank of India, UTI Bank and State Bank of Mauritius and five of its top 10 shareholders are brokerage firms; the public shareholding is 36 per cent. PWC says that the company had 77 requests for duplicate shares (duplicate share certificates have been issued to its fifth-largest shareholder Astral Ventures) and it failed to get a direct confirmation of ownership by different parties as registered by the two depositories, NSDL and CDSL.
Shareholder vaccine
A group of shareholders of Wyeth Ltd are planning to take the company to court over its move to transfer the marketing rights of the vaccine, Prevenar, to Wyeth’s 100 per cent subsidiary for Rs 22.6 crore. Janardhan Kothari, an aggrieved shareholder, contends that the vaccine has the potential to generate over Rs 25 crore in profits and the transfer of marketing rights will hurt Wyeth shareholders. He is trying to drum up support from equally agitated mutual fund managers and is also toying with the idea of making a counter offer to Wyeth to buy out marketing rights for Prevenar at Rs 45 crore, which is nearly twice transfer price. This follows Wyeth’s recent communication to stock exchanges that Wyeth (US), parent of the Indian company, had incorporated another wholly-owned subsidiary in India which will market the vaccine Prevenar. A KPMG valuation determined the Rs 22.6 crore consideration. Shareholders argue that in every chairman’s statement since 2002, they had been assured that the vaccine would be in the listed company and the latest move is a betrayal of this promise.
Awry schedule
The week of February 13 is over, but there was no listing of Reliance Capital Ventures from the Anil Dhirubhai Ambani Group (ADAG). Anil Ambani’s timetable promised a second listing of Reliance Energy Ventures in the week of February 20 and listing of two other companies—Reliance Natural Resources and Reliance Communication Ventures—in the subsequent weeks ending March 6. Funnily, there is no word from the company, the regulator or the bourses to Reliance’s 23 lakh shareholders who have lost their right to demand answers from the company. Sebi must consider J.R. Varma’s suggestion (former Sebi member) that the regulatory framework for demergers needs to be drastically overhauled. He suggests that the scheme of arrangement presented to shareholders must include the Offer Memorandum and specify listing details and these must be examined by the regulator.
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