May 13, 2014 10:29 am

Essar Energy panel backs Ruia family’s take-private offer

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Independent directors of Essar Energy have “reluctantly” recommended that minority shareholders accept a hostile offer from the controlling Ruia family to take the oil and power group private.

Their decision marks an effective admission of defeat by the independent committee led by non-executive director Philip Aiken, which on Tuesday continued to argue that the £900m bid from Essar’s biggest shareholder “materially” undervalued the FTSE 250 group.

At 70p a share, the Ruia’s offer is pitched at a fraction of the 420p debut price at which the family floated Essar in 2010, in an IPO that raised nearly £1.3bn.

The directors’ switch in stance follows confirmation last Friday that EGFL, the investment vehicle of the billionaire Ruia family, had won acceptances from nearly two-fifths of the minority shareholders since launching its formal offer in March – raising its stake in Essar from 78 to 86 per cent.

Essar’s independent committee said on Tuesday: “Despite [our] view on valuation, because the shares offer is now wholly unconditional, Essar Energy shareholders who do not accept the shares offer will be faced with the risks and uncertainties associated with delisting, re-registration and refinancing.”

It added: “Reluctantly, the independent committee therefore believes that Essar Energy shareholders should now seriously consider accepting the shares offer.”

Under the Financial Conduct Authority’s rules, a shareholder needs a controlling stake of 80 per cent to take a company private.

EGFL’s move beyond that threshold prompted an application for delisting on Friday, which is set to take effect on June 10, assuming the board ratifies the move.

Essar Energy – which owns the UK’s second biggest oil refinery at Stanlow in Cheshire, but is mainly focused on refining and power generation in India – was already due to be excluded from the FTSE indices on Thursday.

This exclusion follows the lapsing of a deadline granted for the company to increase its free float from 22 per cent to a minimum of 25 per cent, despite assurances given last year.

Essar’s anticipated exclusion means tracker will no longer be able to hold shares in the company, created a further overhang of Essar shares in the London market.

Standard Life Investments, Essar Energy’s leading minority shareholder, had led the attack against the Ruias’ hostile offer, describing an initial approach as “cynical opportunism” and the formal offer to holders of its free float as “an unacceptable bid at the calculated expense of minority investors”.

Robert Hingley, director of investment affairs at the ABI, also emerged as a key critic of the offer. He said the low-value offer to minority shareholders – echoing that made last year by majority owners of Kazakh mining company Eurasian National Resources Corporation – risked further damaging the UK equity market.

The ABI declined to comment further on Tuesday.

Last month, Mr Hingley wrote directly to UK business secretary Vince Cable, as well as the Indian high commissioner in London, warning of the reputational danger to one of India’s leading business families caused by its threat to delist. He argued that delisting should not be done without the consent of more than a half of the minority shareholder base.

Essar’s share price was largely unchanged at 69.9p on Tuesday. Remaining minority investors have until 1pm on May 23 to accept the Ruias’ offer.

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