The Burman family, the single largest shareholder in shadow bank Religare Enterprises (REL), consolidated its position by raising its stake to 25.18%, past the threshold for triggering an open offer for an additional 26% of the company.
It bought 13.2 million shares from the open market in a block deal for Rs 308.8 crore on Tuesday, increasing its holding from 21.18%.
This comes amid the battle for control of the financial services firm between the Burmans and the incumbent board of directors, led by chairperson Rashmi Saluja. Successful completion of an open offer will see promoter family of Dabur Group with a stake in excess of 51%.
The purchase by the Burmans was at Rs 233.98 per share, slightly below the open offer price of Rs 235 a share that had been announced. The family’s investment vehicles — MB Finmart, Puran Associates and VIC Enterprises — were used for the purchase. Another vehicle, Milky Investment & Trading Co, which had bought Religare Enterprises shares before, was not used this time.
The decision to move ahead follows approval by the Competition Commission of India (CCI) for a potential open offer that came through last week.
CCI on January 23 gave its approval for the acquisition of a 5.27% stake in REL by entities controlled by the Burman family, as well as a subsequent open offer to buy up to another 26%. The provisions were approved under the Securities and Exchange Board of India (Sebi) Regulations, 2011, the competition watchdog had said in a statement.
According to Sebi’s takeover code, an open offer is launched once a shareholder crosses, or intends to cross, the 25% threshold.
Last September, the Burmans declared their intention to launch an open offer at Rs 235 a share but have since faced opposition from Saluja and the board, which has questioned whether they met the “fit and proper” criteria to run a “regulated entity” like REL.
According to Sebi rules, the shares acquired on Tuesday will be kept in an escrow account and the Burmans will not be able to exercise any voting rights over them. They will be allowed to transfer such equity to their demat accounts and exercise voting rights only after expiry of the open offer period, or post regulatory compliance, as mentioned in Regulation 22 (2) of Sebi’s Substantial Acquisition of Shares and Takeovers (SAST) rules.
“We reiterate our commitment towards the acquisition of REL,” said Mohit Burman, chairman of Dabur India. “We now eagerly await the remaining approvals necessary to consummate the open offer and look forward to cooperation by the REL board.”
A REL spokesperson declined to comment.
Special Resolutions
People close to the Burman family said that with Tuesday’s purchase, other than the open offer threshold being triggered, no special resolution can be passed without its consent. Special resolutions require 75% shareholder approval. These include crucial appointments and compensation changes for key management personnel. Most importantly, the equity structure cannot be changed, which includes preferential issues. That rules out the prospects of roping in another strategic or financial investor or shareholder.
“With Burman’s holding 25% plus, REL cannot pass any special resolution without their approval / consent,” said an executive on condition of anonymity.
The Burman family has repeatedly said that the REL management and a “friendly board” have been preventing the flow of information to shareholders and even the regulators. They have even highlighted the excessively high remuneration of Saluja in comparison to peers apart from citing conflicts of interest.
Saluja and the board on the other hand have labelled the Burmans as unfit to run a financially “regulated entity” that is into lending and insurance. They have written to multiple regulators, including Sebi and the Reserve Bank of India (RBI), ET has reported.
Saluja has underlined REL’s turnaround led by her. The Burmans have insisted that, as key shareholders since 2018, they have been injecting equity into the company and are equally responsible for changing its fortunes. Its current market value is Rs 7,798.94 crore.
REL closed at Rs 236.70, up 4.5%, after the development. The stock had reacted in a similar fashion on the day of the CCI approval, ending 5%.
