In this briefing:
- Jain Irrigation: From Up Close The Crop Doesn’t Look Healthy
- RBI Says Kotak Tried to “Take It for a Ride”: Shareholders Should Expect the Consequences
- Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
- RBI Credibility at Stake
- Mindtree (MTCL IN): L&T’s Hostile Takeover Offer Is an Awkward Opening Gambit
1. Jain Irrigation: From Up Close The Crop Doesn’t Look Healthy
Notwithstanding, the revenue growth Jain Irrigation Systems (JI IN) (JISL) seems to be lacking efficiency in utilization of fixed assets. The sale of stake in a subsidiary company raises eyebrow. Another bug that should bother JISL is the quality of its earnings. This impairs any positive forecast on operating profit. The situation becomes sticky when the issues of free cash flow, performance of subsidiaries and threat to goodwill are thrown in the matrix.
2. RBI Says Kotak Tried to “Take It for a Ride”: Shareholders Should Expect the Consequences
The language used in the writ petition filed by Kotak Mahindra Bank (KMB) in Bombay High Court against the banking regulator should have alarmed shareholders. They would be even more apprehensive if they read the language used by the Reserve Bank of India (RBI) in its reply. That a bank should take the regulator to court and publicly challenge its authority in order to prevent a dilution in its founders’ shareholding is itself telling of the founder-CEO’s excessive influence on the board. The harsh, critical language used by the RBI in its court filing (“wilful misrepresentation”, “mala fide intent” taking the regulator “for a ride”) indicates its extreme displeasure with the bank, and the troubles that await the bank if the High Court rules in the regulator’s favour. In such an event, the RBI would probably demand a restructuring of the KMB’s board of directors, and may even force the removal of the founder as a CEO.
3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
4. RBI Credibility at Stake
By Shumita Deveshwar, Director, India research
The Reserve Bank of India’s approval of an interim dividend to the government from its surplus reserves is yet another example of the central bank conforming to the government’s wishes under the leadership of Governor Shaktikanta Das. While investors cheered the RBI’s softer monetary policy stance earlier this month, former RBI heads continue to warn against the government’s short-term bias and emphasize the need for RBI independence.
- Most policies that led to the spat between the RBI and the government spat have now been reversed
- The growth focus has translated into easier banking and regulatory norms
- A softer monetary policy puts the RBI’s hard-fought credibility at stake
- Outflows due to political uncertainty and global headwinds will prove tough for a less credible RBI to counter
- Loose fiscal and monetary policies put long-term macroeconomic stability at risk
5. Mindtree (MTCL IN): L&T’s Hostile Takeover Offer Is an Awkward Opening Gambit
Late Monday evening, Larsen & Toubro (LT IN) launched India’s first ever hostile takeover in the tech sector. L&T is seeking to acquire a 20.3-66.3% stake in Mindtree Ltd (MTCL IN) through a three-step transaction. Mindtree’s founders/promoters together have a 13.3% stake and staunchly oppose the takeover. L&T’s open offer presents an opportunity for longstanding large shareholders to partially or fully exit their stakes at a reasonable price.
L&T’s open offer is less enticing for minority shareholders due to the small premium. Minority shareholders hope that a bidding battle will drive up bid premiums. However, we believe that minority shareholders should stick with their holdings as Mindtree’s fundamentals remain solid, but a chance of a material bump to L&T’s open offer is low.
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