Mumbai-based digital cinema distribution company UFO Moviez’ planned merger with Chennai-based Qube Cinemas Technologies has hit a major roadblock in the National Company Law Tribunal (NCLT).
Keeping in mind shareholders’ interest, NCLT has refused to give its nod to the proposed scheme of arrangement and amalgamation between the two companies.
“The whole scheme appears to be framed also for the purpose of evading the duly payable stamp-duty and to deny the shareholders at various levels their legitimate right of a proper valuation of the intrinsic share value along with goodwill,” V Nallasenapathy and Bhaskara Pantula Mohan, member judges of NCLT’s Mumbai chapter said in the order released last week.
UFO Moviez had announced the merger in November 2017, with an aim to be the leader in India’s digital cinema distribution and in-cinema advertising space.
The multi-layered deal involved the merger of UFO and its wholly owned subsidiary PJSA Technosoft with Qube Cinema and its group companies Qube Digital Cinema and Moviebuff.
As part of the scheme, Qube Cinema was to first demerge its business of providing technology solutions and services in the film, video and audio domains, including digital cinema advertising, into Qube Digital. This was eventually to be merged with UFO after ICICI Venture and UFO buy a stake in Qube Digital from private equity investors.
Qube Digital’s shares purchased by UFO were to be cancelled after the merger.
Finally, UFO and Qube Digital were to have a stake of 63.6% and 36.4%, respectively, in the merged entity.
However, setting an example of protecting shareholders’ interest, NCLT has rebuked UFO Moviez India dismissing its “framed” attempt for amalgamation as the dedicated court prioritised shareholders’ worth.
“Further there is something illegal definitely on the part of the Petitioners to camouflage the real intention behind the whole concept,” the order pointed out.
UFO Moviez is planning to challenge the order in National Company Law Appellate Tribunal (NCLAT).
“The company disagrees entirely with the Order of the NCLT, Mumbai. An Appeal against the said Order is being filed,” a UFO Moviez spokesperson said.
Earlier, the company had filed the petition for scheme of arrangement and amalgamation amongst UFO Moviez India, Qube Cinema Technologies, Qube Digital Cinema, Moviebuff, PJSA Technosoft and their respective shareholders and creditors.
The misleading aspect of the scheme, according to the judges, is that the PJSA Technosoft would be called as Qube Cinema after the scheme is through.
“This bench explored all the real intentions and to identify the genuineness, if any, of the scheme. Honestly, the answer is a big NO,” the order said. “Now, we are of the considered view that the Petition deserves no positive consideration and has to be dismissed on all accounts,” the order said adding that judges are not against any business combinations, mergers or any proposition that would make the investors, promoters and shareholders more and more profitable.
The Petitioners, underestimating the prudence and ability of the system, made an intelligent attempt to test the depth of the water by flouting various laws, the judges said.
The scheme, tribunal observed is “intelligently devised to contravene the provisions of Section 68 of the Companies Act, 2013 and is influencing the stock market, which affects public interest”.
It is also observed that the amalgamation of Qube Digital Cinema with UFO Moviez India does not enjoy the support of 53.20% of the shareholders of Qube Digital Cinema Private Limited.
Shares market, however, has reacted different to the dismissal with some market participants blaming punters playing on the scrip.
The court actually pronounced the order on January 21 triggering an immediate 6% decline in its shares prices on BSE. Since then, the company shares tanked more than 13% to close at Rs 225.35 apiece Friday.
Source: Economic Times