Ess Dee Aluminium’s proposed merger scheme is stacked heavily against India Foils’ minority shareholders and the recent spurt in trading volumes of India Foils is highly dubious

The minority shareholders of Kolkata-based aluminium foils maker India Foils have been given a raw deal under the proposed merger scheme with packaging solutions provider Ess Dee Aluminium Ltd. In what appears to be another case of absolute apathy and discrimination against minority shareholders, the management of Ess Dee Aluminium has put a ridiculously low valuation on India Foils that will leave these shareholders high and dry.

Apparently, Ess Dee Aluminium is pushing for a share-swap ratio of 1,285:1 that means shareholders of India Foils will have to surrender their 1285 shares to get a single share of Ess Dee. When the same is calculated with Ess Dee’s current share price of Rs400 per share, the value of each India Foils share comes out to be a paltry 31 paise only. That too when during the last eight months, India Foils’ shares have been trading between Rs12-Rs16 per share.

According to an extra-ordinary general meeting (EGM) notice sent to shareholders, Mumbai-based chartered accountant firm MP Chitale and Co did the valuation for the merger.

In November 2008, Ess Dee bought a majority stake in India Foils for Rs130 crore from Anil Agrawal led Vedanta group as part of the rehabilitation scheme approved by the Board for Industrial & Financial Reconstruction (BIFR). Now Ess Dee wants to merge India Foils with itself and has proposed the merger scheme with 1285:1 ratio. Since Ess Dee promoters already hold 89.4% stake in India Folis, they are ‘forcing’ the merger on other minority shareholders, said an investor.

According to Hirjee Nagarwalla, a shareholder, he had held shares of India Foils for a long period. “When Ess Dee took controlling stake in India Foils, no open offer was made to the public. Then in 2009, Ess Dee announced that it would merge India Foils with itself. About a month ago, shareholders were notified that the merger ratio has been fixed at 1285:1. In effect, the value of India Foils has been put at 31 paise, when its average traded price for last one year is Rs14. Minority shareholders like me would be left with nothing,” he said.

An email sent to Ess Dee Aluminium officials remained unanswered till the time of writing the story.

India Foils’ shares last traded on the Bombay Stock Exchange on 19 September 2008 at Rs12.95. Before its last trading, the 52-week average share price of India Foils was Rs10.31 per share at the lowest end and Rs30.05 at the highest end. The shares remained untraded till its relisting on 19 June 2009 and on that day it rose to a high of Rs23.95 and a low of Rs17.41. On Wednesday, India Foils closed at Rs7.50, down 3.97% on the Bombay Stock Exchange (BSE), while the benchmark Sensex closed 1.36% higher at 17,000 points.

The minority shareholders also brought to light the heavy trading being carried out in India Foils’ shares. In middle of January 2010, India Foils’ shares surged to Rs20 on heavy volumes. Soon after that, the share witnessed a freefall. The share volumes have seen a sudden spurt, compared to its average volumes over the last few months. This sudden rise and fall in the share price, supported by higher volumes, suggests foul play.

Indeed, if Ess Dee goes ahead and completes the merger with India Foils at the proposed valuation, it will put minority shareholders at a loss. If it decides not to carry out the merger or the swap ratio is altered, then the trading in India Foils’ shares should raise some eyebrows. People who have been buying at low prices will benefit. Either way, the on-goings in this case demand careful scrutiny by the regulator.