Minority shareholders oppose FAL Industries'' amalgamation with Forbes Gokak

Venkatachari Jagannathan
20 February 2006

Chennai: During a corporate amalgamation should the assets of the two amalgamating companies be valued at the market rate? When does the 'accounting standard (AS) 14' issued by the Institute of Chartered Accountants of India become applicable — prior or post amalgamation?

These are the two major questions that the Madras High Court, which is hearing the objections from a group of minority shareholders to the scheme of amalgamation between FAL Industries Limited and the Forbes Gokak Limited, have to decide on.

FAL Industries, which has an equity base of Rs4.5 crore, started as a manufacturer of manual typewriters. With the domestic market for manual typewriters declining steadily, the company started contract-manufacturing vacuum cleaners, motors, air purifiers, paper shredders and other products.

Nearly 70 per cent of the company's turnover comes from selling vacuum cleaners and electric motors to Eureka Forbes Limited, a wholly-owned subsidiary of Forbes Gokak, part of the Shapoorji Pallonji group. The group holds a 78-per cent stake in the FAL Industries.

Sometime back the group decided to amalgamate FAL Industries with Forbes Gokak, which holds around 31 per cent of the FAL Industries's stake. The majority shareholders of both the companies approved the scheme of amalgamation. The swap ratio, based on the valuation by the Mumbai-based accounting firm N M Raiji & Co, is one Rs10-equity share of Forbes Gokak for every seven Rs10 equity shares of FAL Industries. The companies have filed the scheme of amalgamation at Mumbai and Chennai High Courts — FAL Industries with the Madras High Court and Forbes Gokak with the Mumbai High Court.

Four shareholders who collectively hold around 1.10 per cent (48,924 shares) of FAL Industries, are objecting to the amalgamation on the grounds that the swap ratio does not reflect the true value of FAL Industries. According to them, FAL Industries have been undervalued. They have filed their objections with the Madras High Court.