Essar Energy minority shareholders hire law firm to block full takeover
12 April 2014
Minority shareholders of Essar Energy have hired law firm Skadden Arps to help stop the Ruia brothers Ravi and Shashi, who control majority stake from buying the rest of the company cheaply.
A special committee set up by the Association of British Insurers yesterday said that it has Skadden Arps to advise on how to get a better deal.
Billionaire Ruia brothers, through their investment vehicle Essar Global Fund Ltd (EGFL), own more than 78.02 per cent of the shares in Essar Energy.
On 17 February, London-listed oil and gas producer Essar Energy announced that it had received a possible buyout offer from its majority shareholder EGFL for the ordinary shares in the company that EGFL does not already own. (See: Essar Global Fund offers to buy rest of Essar Energy for £900 mn)
EGFL had offered to pay minority shareholders of Essar Energy 70 pence a share ($1.17), a premium of 4 pence a share to Essar Energy's 16 February closing price of 66 pence.
EGFL also said it would offer to buy Essar Energy's 4.25 per cent convertible bonds at a price of 80 cents.
Following the offer, Essar Energy set up an independent committee of its board of directors to consider its terms and, in particular, to protect the interests of the company's minority shareholders. The committee had subsequently sought feedback on the proposal from a number of stakeholders.
Essar Energy had appointed Greenhill & Co to act as an independent financial adviser alongside JP Morgan Cazenove to advice the independent committee, in accordance with latest guidelines issued by the Association of British Insurers.
After considering the Ruias' proposal and the feedback from shareholders, the committee unanimously concluded that despite the current operational and Indian macro-economic challenges facing the business, a possible offer price of 70-pence per ordinary share clearly undervalues the company and its future prospects.
Minority investors such as Henderson Global Investors and Standard Life, who collectively hold around 9 per cent of Essar Energy stock, were vocal about their displeasure, which they felt undervalued the company.
The ABI committee had written to Essar Energy chairman, Prashant Ruia, Shashi Ruia's son, asking him not to delist the company unless more than half of the minority investors accept the offer.
Essar Energy is a low-cost integrated energy company focused on India with assets worth $16 billion across the power and oil and gas industries.
Essar Energy owns the Vadinar refinery, the second-largest private sector refinery in India, the Stanlow refinery in the UK, a 50 per cent stake in the Kenya Petroleum Refinery Limited and a network of 1,400 retail fuel outlets in India.
In the oil and gas sector, the company has 15 blocks and fields in in India, Indonesia, Madagascar, Nigeria and Vietnam, while its power unit has seven operational power plants in India and one in Algoma, Canada, with a total installed capacity of 3,910 MW.
It also has access to approximately 500 mt of coal resources across seven coal blocks in India and overseas.