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Delisting of Fresenius Kabi Oncology April 2013

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Fresenius Kabi Oncology 2013

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DELISTING PLAN

Fresenius Kabi Oncology Ltd (formerly known as Dabur Pharma Ltd) is a leading Indian company for cancer

research and anticancer products. The company develops, manufactures and markets specialty pharmaceutical

products in the area of Oncology with manufacturing operations in India & UK and marketing operations

worldwide. The company's prime focus areas are New Chemical Entities (NCE), Noves Drug Delivery Systems

(NDDS), discovery-led filing of patents, and development of Oncology generics.

The company has announced its intention to delist voluntarily and has made following announcement in its

communication to the stock exchanges:

“Fresenius Kabi Oncology Ltd had informed BSE that the Company has received a letter dated April 16, 2013 ("Letter") from

Fresenius Kabi (Singapore) Pte Ltd, the promoter shareholder of the Company ("FKSL") notifying the Company of its intention to

make a voluntary delisting offer to the public shareholders of the Company ("Delisting Offer") to acquire the entire public

shareholding of the Company (i.e. 3,00,63,255 equity shares of Re. 1 each, representing 19% of the share capital of the Company)

and delist the equity shares of the Company from the stock exchanges on which the equity shares of the Company are presently

listed, i.e., BSE Limited and the National Stock Exchange of India Limited in accordance with the SEBI (Delisting of Equity Shares)

Regulations, 2009 ("Delisting Regulations"). FKSL has expressed its intention to pay an indicative price of up to Rs. 130 per share

to acquire the shares offered to it in the Delisting Offer, subject to FKSL''s right under the Delisting Regulations to accept or reject

any price discovered under the reverse book building process set forth therein.”

TAKEOVER OF THE COMPANY BY FRESENIUS KABI (SINGAPORE) PTE LTD

The company was earlier known as Dabur Pharma Limited and was taken over by the Singapore based entity

Fresenius Kabi (Singapore) Pte Ltd (“FKSL” or “Acquirer”) along with PAC Fresenius Kabi Austria GmbH (“FKA”),

Fresenius SE (“FSE”) and Fresenius Finance B.V. (“FFB”). The issue was managed by Morgan Stanley India

Company Private Limited. Total equity shares purchased by the acquirer were 90.89% of the total shares

including 73.27% from the then promoters Dabur Pharma and 17.62 % in an open offer which closed on

Wednesday, July 9, 2008.

The letter of offer had a declaration by the company regarding compliance with listing agreement as to minimum

public shareholding (Para 4.6 page 34 of letter of offer – reproduced below)

As per Clause 40 A of the listing agreement (“Listing Agreement”) with the BSE and NSE, the Target Company is required to

maintain at least 10% public shareholding on a continuous basis. In the event that the acquisition made in pursuance to the Offer

results in the public shareholding of the Target Company falling below the minimum level required as per Clause 40A of the Listing

Agreement, the Acquirer undertakes to comply with the requirements of Clause 40A of the Listing Agreement, by adopting one of

the methods specified therein.

The Acquirer may evaluate the option to delist the Target Company. Any decision to delist would be dependent upon a number of

factors, including but not limited to, the public holding in the Target Company, financial position of the Acquirer, prevailing price

of the Shares of the Target Company and the prevailing regulatory environment for delisting etc. As of date, no decision has been

taken in this regard by the Acquirer.

Subsequently the acquirers (new promoters) reduced the shareholding to 90% and therefore became compliant

with clause 40A of the listing agreement and fulfilled the commitment given in Letter of Offer.

Did the promoters’ action of reducing shareholding from 90.89% to 90% mean that statement in the Letter of

Offer regarding probable delisting lost its significance (as the company became compliant with listing

agreement and the delisting intention was expressed in the paragraph relating to compliance with listing

agreement) or did the intention relating to delisting remained in effect even after the Company achieved



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compliance? SES is of the opinion that since the delisting option was stated only in relation to compliance with

90% promoter holding, it can no longer be considered as a statement of intention.

OFFER FOR SALE

On May 30, 2012, the Company disclosed a letter it had received from its promoter. The letter clearly indicated

that the objective of the promoters was to eventually reduce the holding of promoters to 75% and increase the

public shareholding to 25% by June 30, 2013. It also stated that this will be achieved by one or more Offer For

Sale (OFS) and subject to approval of FIPB. It did not reveal intention of promoters to delist the shares.

In October 2012, the Company announced an OFS and adopted the procedure specified in SEBI circular

(CIR/MRD/DP/ 18 /2012 July 18, 2012). The company made following announcement to the stock exchanges:

Fresenius Kabi Singapore PTE Ltd (the "Seller"), has submitted to BSE a Consolidated Notice of Offer for Sale of 1,18,67,074 equity

shares with an option to sell an additional 23,73,415 equity shares aggregating to 1,42,40,489 equity shares of face value of

Re.1/- each of Fresenius Kabi Oncology Ltd on October 12, 2012, by promoter through a sale on the separate window provided by

the stock exchanges for this purpose. The Sale shall take place at the separate window of the Stock Exchanges and shall

commence on October 12, 2012 at 9.15 a.m. and shall close the same day at 03.30 p.m. IST ("Sale Date").

Through the OFS, the promoters sold total of 1,42,40,489 equity shares and reduced their shareholding to 81%

(reduction by exactly 9%). Morgan Stanley India company Pvt. Limited acted as broker to the transaction of OFS.

A circular issued by SEBI (partly reproduced below) for OFS eligibility stipulated that the OFS route was available

only to those companies who were either in top 100 companies in terms of market capitalization or those who

were required to increase minimum public shareholding.

1. Eligibility: (b) Sellers - (i) All promoter(s)/ promoter group entities of such companies that are eligible for trading and are

required to increase public shareholding to meet the minimum public shareholding requirements in terms Rule 19(2)(b) and

19A of Securities Contracts (Regulation) Rules, 1957 (SCRR), read with clause 40A (ii) (c) of Listing Agreement; and (ii) All

promoter(s)/ promoter group entities of top 100 companies based on average market capitalization of the last completed quarter.

Therefore, since the Company is not amongst the top 100 companies in terms of market capitalization, it could

have gone for the OFS route only for the purpose of increasing its public shareholding.

SHAREHOLDING PATTERN OF THE COMPANY

Category 31st March 2013 POST OFS 30th September 2012 PRE OFS

Shareholders % holding Shareholders % holding

Promoter Group 1 81.00% 1 90.00%

Public Shareholding (Institutional) 25 9.32% 22 1.91%

Foreign Institutional Investors 14 8.08% 10 0.19%

Foreign Financial Institutions 1 0.98% 1 0.98%

Other Institutional shareholders 10 0.26% 11 0.74%

Public Shareholding (Non-Institution) 44,307 9.68% 44,097 8.09%

Bodies Corporate 842 2.18% 1,017 1.19%

NRIs 1,166 0.48% 1,142 0.44%

Individuals & Others 42,299 7.02% 41,938 6.46%

Total 44,333 100% 44,120 100%



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From the table, it can be deduced that during the OFS, most of the 9% shares sold by the promoters have moved

to FIIs. The present shareholding reveals that 8% FII holding is distributed as under:

Shareholder No. of shares % shareholding

The Royal Bank of Scotland Asia Merchant Bank (Singapore) Limited 30,52,625 1.93

Macquarie Bank Ltd 29,47,375 1.86

Morgan Stanley Asia (Singapore) Pte 25,10,841 1.59

Nomura Singapore Ltd 23,24,852 1.47

Total 1,08,35,693 6.85

Based on the presented facts, the following questions arise:

1. What factors changed the plans of the Company from increasing the public shareholding through the OFS

route with a view of achieving compliance with the minimum public shareholding requirements to delisting

of its shares, all within the span of 6 months?

2. Assuming that the Company indeed changed its plans due to justified reasons, what view should be taken

on the OFS made by the Company with the objective of increasing its public shareholding?

3. Whether the option to delist given in the original Letter of Offer be taken as intention which is in public

domain?

4. What view should be taken of the letter disclosed to the stock exchanges in May 2012 stating that the

promoters intended to increase the public shareholding of the Company (in compliance with the listing

agreement)? What was the rationale for fixing quantum of first OFS at 9%.

5. Can the Company opt for delisting? What factors would determine the same?

6. Has the Company tried to exploit a regulatory vacuum?

7. Finally, is this just an attempt to buy time beyond the stipulated June 2013 deadline to achieve minimum

75% public shareholding?

To answer some of these questions, let us first look at the relevant provisions of the law (Delisting Regulations)

and analyze the impact of the same on the delisting of the Company.

DELISTING ANALYSIS

OFFER SIZE REQUIRED FOR DELISTING

An offer made under chapter III shall be deemed to be successful if post offer, the shareholding of the promoter (along with the

persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per

Schedule II, reaches the higher of – (a) 90% of the total issued shares of that class excluding the shares which are held by a

custodian and against which depository receipts have been issued overseas; or (b) the aggregate percentage of pre offer

promoter shareholding (along with persons acting in concert with him) and 50% of the offer size.(Regulation 17)

Based on regulation 17, we have calculated the size

of offer required for delisting both prior to and post

OFS.

Intuitively, it appears that the delisting option has

been made more difficult due to the OFS made

earlier as company has to buy back 9.5% shares

against 5% earlier. However, digging deeper, it can

Pre OFS Post OFS

Pre-offer promoter shareholding 90.00% 81.00%

De-listing offer size 10.00% 19.00%

50% of delisting offer size 5.00% 9.50%

Minimum acceptance required 5.00% 9.50%

Total promoter shareholding

required for demerger 95.00% 90.50%



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be argued that the OFS has, in fact, made the delisting easier as now company will have to reach level of

promoters holding of 90.5% now as against 95% if delisting was done without OFS.

Pre-OFS, Institutional shareholding was less than 2%. Assuming that all institutional investors participated in the

delisting offer ( if made prior to OFS), the promoters would have had to buy the remaining 3% shares from non-

institutional shareholders (numbering more than 44,000) to be eligible for delisting. Post-OFS, institutional

investors have over 9% shares. If the promoters buy institutional shareholdings and shares held by body

corporates (who own 2% of the shares) through an open offer, the promoters would be able to achieve the

minimum offer size of 9.5%.

Therefore, keeping in mind that delisting offers often fail due to lack of participation by retail investors for

various reasons, it appears that the OFS has increased the possibility of a successful delisting offer specially

keeping in view returns that would accrue to institutional investors. And once the promoters are able to delist

rest of the investors numbering more than 44,000 would be forced to tender the share at the same price.

POTENTIAL DELISTING TIME-LINE

30 June 2013: Current deadline to increase public shareholding to a minimum of 25%

Approval of Board: The proposal to delist the Company was approved on 17 April 2013 and public announcement

for delisting was made on the same day.

In accordance with Delisting Regulations, the delisting would require following steps:

Approval of Shareholders: Postal ballot to be sent to shareholder to take approval on the delisting plan.

Assuming that the postal ballot is sent on the day board approved delisting and the entire process will take a

minimum of 30 days, the approval can be obtained on or after 17 May 2013.

Delisting Approval from Exchanges: Application for delisting made to the stock exchanges which shall approve or

reject application within 30 working days. Assuming no delays are made in the postal ballot process, the

approval/rejection could be received anytime between 18 May 2013 and 18 June 2013

Public Notice in News Papers: Company gives a public notice and determines eligible shareholders to participate

in the delisting offer. Hypothetically, the entire process could be completed by 18 June 2013, but realistically, the

process is likely to stretch beyond the 30th June 2013 deadline for complying with the minimum public

shareholding regulation.

Therefore, in the most probable scenario, on 30 Jun 2013, the Company would be non-compliant with the

listing agreement and only half-way through the delisting offer. Under such a scenario, SEBI may not be able to

take any action since the Company would have already initiated the delisting process and would be in

compliance with the delisting circular.

IMPACT OF FAILURE OF DELISTING OFFER

What happens if delisting offer fails? Or what if the Company decides to exercise the right but decides not to

accept the offer price? The same is covered under regulation 16(d).

16. (d) in a case where the public shareholding at the opening of the bidding period was less than the minimum level of public

shareholding required under the listing agreement, the promoter shall ensure that the public shareholding shall be brought up

to such minimum level within a period of six months from the date of closure of the bidding through any of the ways

mentioned in sub-regulation.



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Therefore, if the delisting fails or the Company decides not to accept the offer price, the Company would get an

additional six months to achieve compliance with the minimum public shareholding requirement.

Which regulation will take precedence - Securities Contract Regulation Rules (SCR Rules) or the Delisting

regulation?

IMPACT OF DELISTING OFFER ON ELIGIBILITY OF OFS MADE BY THE COMPANY

SES is of the opinion that OFS could have been made by the Company with the sole objective of increasing its

public shareholding and complying with the law. Having failed to achieve the required public shareholding and

subsequently changing its plans and going for delisting, SES feels that the company may be deemed to have been

ineligible for OFS route if it had no intention of increasing public holding to minimum 25%. In our opinion, the

Company has violated the provisions of SEBI circular (CIR/MRD/DP/18/2012 July 18, 2012), unless the company

has valid and acceptable reasons (acceptable to SEBI) for changing its plan to increase public shareholding to the

25% threshold.

IS THE ENTIRE SCHEME DECEPTIVE

The company has not disclosed the reasons why it has gone from the OFS route to increase public shareholding in

Oct 2012 to delisting, all in the span of 6 months. The question being raised is whether OFS was planned to help

the proposed delisting offer? SES is of the opinion that company should disclose the reasons for the change in

plan to clear any air of doubt. Regulation 4 (5) of (Delisting Regulations) covers this aspect.

(5) No promoter or other person shall – (a) employ any device, scheme or artifice to defraud any shareholder or other person; or

(b) engage in any transaction or practice that operates as a fraud or deceit upon any shareholder or other person; or (c) engage in

any act or practice that is fraudulent, deceptive or manipulative – in connection with any delisting sought or permitted or exit

opportunity given or other acquisition of shares made under these regulations.

PARTICIPATION IN DELISTING OFFER BY BUYERS OF OFS SHARES

SES cannot foretell as to who will participate and what will be the fate of delisting offer. However, the sudden

change in plans by the company raises a few questions. Was the OFS made with the purpose of aiding the

subsequent delisting offer? SES believes that the answer to this question can only be given by the regulator, SEBI

after the delisting offer is over.

SES believes that issue of complicity will be raised if all investors who got substantial OFS shares participate in the

delisting offer. In all probability, the OFS buyers may be acting with genuine intentions. It should be noted that

there are sufficient economic reasons for FIIs (who had subscribed to OFS) to participate in the delisting offer as

OFS was made at Rs 80 per share, whereas delisting floor price is Rs.130 per share. Participation in the delisting

offer would therefore result in a gain of Rs.50 per share amounting to annualized return of 90% (assuming

delisting gets over by July 2013).However, the conduct of Company in changing its course has made things

difficult for the OFS buyers. These buyers will have to keep following regulations in mind while participating in the

delisting offer.

(5) No promoter or other person shall – (a) employ any device, scheme or artifice to defraud any shareholder or other person; or

(b) engage in any transaction or practice that operates as a fraud or deceit upon any shareholder or other person; or (c) engage in

any act or practice that is fraudulent, deceptive or manipulative – in connection with any delisting sought or permitted or exit

opportunity given or other acquisition of shares made under these regulations.

OFS buyers will have to ensure that they are not seen to be a PAC with the promoters; or else Regulation 14 and 5

may be triggered.



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(14) A promoter or a person acting in concert with any of the promoters shall not make a bid in the offer and the merchant banker

shall take necessary steps to ensure compliance with this sub-regulation.

SHORTCOMINGS OF THE REGULATIONS

Regulation 4(1) imposes restriction on delisting based on certain conditions which includes prior preferential

allotments, buy back and listing less than three years back by the companies. Although the OFS route is strictly

not a fresh issue equity shares, it is also not a transaction done in secondary market in normal course of trading &

investment. The OFS route attracts new investors and the promoters are the trigger point for bringing new

investors. It is very similar to OFS through letter of offer route. Therefore, these new investors also need an

assurance that once they buy shares in OFS, the shares will continue to be listed. It may amount to defrauding

shareholders if immediately after OFS, the Company decides to delist its shares. SES is of the opinion that SEBI

shall impose the same restrictions on delisting after OFS as are applicable in case of preferential offer, buy-back or

IPO listing.

4. (1) No company shall apply for and no recognized stock exchange shall permit delisting of equity shares of a company, (a)

pursuant to a buy-back of equity shares by the company; or (b) pursuant to a preferential allotment made by the company; or (c)

unless a period of three years has elapsed since the listing of that class of equity shares on any recognized stock exchange; or

CONCLUSIONS

SES is of the opinion that the proposal of the Company to delist does not confirm to good corporate governance

principles. Why company is not going for follow up OFS although current price is higher than what was prevailing

at the time of first OFS? SES recognizes that price can fluctuate and may not be the sole reason for any decision.

Question can be raised on whether the OFS made in October 2012 was in accordance with SEBI regulations,

especially when seen in conjunction with the change in plans of the Company, more so because the company has

not disclosed the reasons for change in plans.

The Company will more likely than not miss the June 30, 2013 deadline for meeting the minimum public

shareholding norm. SES also feels that if regulator SEBI does not find any flaw in the plan or process adopted by

the Company, the same will give a golden opportunity to all non-compliant company to get an extension to

achieve compliance without facing any regulatory problem.

SES recommends that shareholders shall reject the plan to delist unless company discloses valid reasons for

delisting when only 6 months ago it had increased its public shareholding through the OFS route.


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DISCLAIMER

While SES has made every effort and has exercised due skill, care and diligence in compiling this report based on publicly available information, it neither guarantees its accuracy, completeness or usefulness, nor assumes any liability whatsoever for any consequence from its use. This report does not have any approval, express or implied, from any authority, nor is it required to have such approval. The users are strongly advised to exercise due diligence while using this report.

This report in no manner constitutes an offer, solicitation or advice to buy or sell securities, nor solicits votes or proxies on behalf of any party. SES, which is a not-for-profit Initiative or its staff, has no financial interest in the companies covered in this report except what is disclosed on its website.

The report is released in India and SES has ensured that it is in accordance with Indian laws. Person resident outside India shall ensure that laws in their country are not violated while using this report; SES shall not be responsible for any such violation.

This report may not be reproduced in any manner without the written permission of Stakeholder Empowerment Services Pvt. Ltd.

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