Nagarjuna Fertilizers’ shareholders unhappy with demerger proposal, shares down 13% since announcement

The company’s board of directors approved a scheme to demerge its oil business into a separate entity called Nagarjuna Oil Refinery. However, this has made minority shareholders of the company unhappy due to the proposed share swap formula, which they feel is in favour of the promoters. Nagarjuna Fertilizers shares have fallen 13% since the demerger proposal.

Nagarjuna Fertilizers and Chemical Ltd (NFCL) is demerging its oil business under a scheme of arrangement and amalgamation that has been approved by its directors, in to a separate entity. The scheme is expected to come into effect from 1 April 2011. However, minority shareholders have raised doubts over the plan with regard to the post-merger shareholding of the promoters. In addition, the company shares have also fallen 13% to Rs25.85 since January 2011, just above its 52-weeks low.

According to a letter, dated 10 January 2011, from the company to the Bombay Stock Exchange, the board of directors considered and approved a composite scheme of arrangement and amalgamation of iKisan Ltd, Kakinanda Fertilizers Ltd (KFL), NFCL and Nagarjuna Oil Refinery Ltd (NORL). The scheme envisages "demerger of oil business undertaking of NFCL into NORL and the merger of the residual NFCL and iKisan into KFL."

KFL is a subsidiary of NFCL, while iKisan is a company, which provides Information Technology Enabled Services in Agriculture.

Pursuant to this scheme, the share allotment for the demerger of the oil business undertaking, will be "one equity share of Re1 each fully paid up of NORL for every one equity share of Rs10 each fully paid up, held by the shareholders in NFCL." Also, "one preference share of Rs10 each fully paid up of NORL for every one preference share of Rs100 each held in NFCL" the company states.

For the merger of residual NFCL into KFL, the letter says that "11 equity shares of Re1 each fully paid up of KFL for every ten equity shares of Rs10 each fully paid up, held by the shareholders in NFCL" and "one fully paid preference share of Rs90 each of KFL shall be issued and allotted for every one preference share of Rs100 each held in NFCL."

The share allotment for the merger of iKisan into KFL will be "43 equity shares of Re1 each fully paid up of KFL of every 10 equity share shares of Rs10 each fully paid up, held by shareholders in iKisan," the letter says.

The company informed that the share exchange ratio has been recommended by Grant Thornton, Bangalore. Mumbai-based Keynote Corporate Service Ltd has also provided fairness opinion.

In another statement, NFCL informed the National Stock Exchange, that in an order on 4 March 2011, the Andhra Pradesh High Court had directed the company to convene a meeting of its members on "15 April 2011 for the purpose of considering and, if thought fit, approving with or without modification(s), the proposed arrangement and amalgamation embodied in the Composite Scheme of Arrangement and Amalgamation."

There has been much speculation among retail investors, who feel that the proposed scheme goes against the interests of minority shareholders.

The NFCL stock price has slipped nearly 13% since the demerger plan was approved early January. In fact it has been on a sharp losing streak for over four months, down nearly 40% from its 52-week high of Rs 42.45 on 10 November 2010. The Sensex has lost about 14% in this period.

Moneylife has sent a detailed questionnaire by email to the NFCL company secretary, seeking an explanation on the valuation details and the method used to arrive at the valuation. The message to the company also seeks information about KFL and iKisan. No reply has been received so far.




5 years ago

As is usual a corporate house is making fool of small investors. Ahead of UREA price decontrol promoters are increasing thier stack indirectly in Fertiliser entity.


5 years ago

Isn't it normal for shareholders to receive notification of such actions before they occur ?

Are we also not entitled to vote ?

I have not received any communications from the company at all regarding this issue. I don't think this is fair.

Ajay Sarvagnam

5 years ago

I understand, on demerger, the total equity value of the 2 'new' entities, NORL & KFL vis-a-vis the original entity NFCL, will remain only 21%.
If I have got it right, the remaining 79% goes to Reserves of NORL & KFL, no?
How does this 'benefit' (if at all) retail shareholders like me?

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