Indian Starch Sector Leader as well as World Starch Major Roquette are Tarnishing their Reputation by Not Coming Clean on the Acquisition

The day from which World Starch Major Roquette Freres announced the acquisition of Indian Starch Sector Leader Riddhi’s all runnning plants, there is widespread discontent amongst the minority shareholders of Riddhi Siddhi who are feeling cheated by the management of Riddhi. Their contention is that why a company who is growing handsomely and has just started expansion in margins with current FY11 Net Profit expected at 120 cr. +, wants to sell out its business ? Agreed, it is management’s choice and they have to decide whether they want to be in the growing business or not, but then by exercising their right of choice why the management is foregoing minority shareholders’ interests by structuring the deal in such a way that minority shareholders are not given their right to exit, if they want to, if the company is not going to be in Starch & Starch Derivatives sector in future. That is exactly the entire discontent is all about —–

First, the management should not have taken the decision to exit a booming business which had just started to flourish and,

Second, if atall they wanted to exit, they should have provided an exit opportunity to the minority shareholders who were invested in the company by believing on the prospects of its business and the positioning of the company in the business. This could have been easily done by giving  Roquette the stake in the listed entity and making an open offer to minority shareholders to delist the company if atall Roquette wanted full control of the business. On the contrary, the acquisition deal is structured in such a way that Roquette can avoid making an open offer and therefore provide an exit opportunity to minority shareholders. This is not atall in interest of Riddhi as well as Roquette as structuring deal in such a way by foregoing minority shareholders interests is going to tarnish the image of Roquette more and Riddhi less since Roquette is a big MNC with worldwide operations and topline of billions of dollars.

Just to give an example as to how much extent the interests of minority shareholders are foregone, if we take the enterprise value of Rs. 1250 cr. applied by Roquette to Riddhi’s subsidiary where all the running plants are transferred, and deduct even the 220 cr. odd debt on the books of Riddhi, then also minority shareholders would have got an exit option at Rs. 925 which is 78 % premium to all time high price of Riddhi on the bourses.

Hence, this is the case of clear breach of trust of minority shareholders and hope Roquette and Riddhi will do something immediately to save the falling repuatation of them amongst financial fraternity members of India.