M & A CritiqueTransaction which has triggered the Open Offer Obligation :
Royal Nirman Private Limited (‘RNPL’) has entered into a Share Purchase Agreement (‘SPA’) with Promoter / Seller, WILO SE of the MPF Systems Limited (Target Company) on July 01, 2014 for acquisition of 18,87,697 Equity Shares constituting 55.48% of the total paid up Share capital of the Target Company, aggregating to Rs.17.56 Lakhs payable in cash. After that RNPL made Public Announcement / Open Offer to the shareholders of MPF Systems Ltd (Target Company) to acquire 8,84,700, fully paid-up equity shares of face value of Rs 10/- each of the Target Company, constituting 26% of the paid-up and voting equity share capital of the Target Company (Voting Share Capital) on July 01, 2014.
Information about Royal Nirman Private Limited (‘RNPL’) / Acquirer :
‘RNPL’ was incorporated on 10th November 2010 under the Companies Act 1956 with the Registrar of Companies, West Bengal by tow chartered accountants and one of them is still a shareholder and director. The Registered office of RNPL is situated at 1st Floor, Block – D, Mercantile Buildings, 9/12, Lal Bazaar Street, Kolkata – 700001. RNPL has
RNPL does not hold any interest in the Target Company. Further, there are no directors on the board of the Target Company representing RNPL.
The Authorized Share Capital of the RNPL is Rs. 31,50,000/- comprising of 3,15,000 Equity Shares of Rs. 10/- each. The issued, subscribed and paid-up capital of the RNPL is Rs. 30,10,000/- consisting of 3,01,000 Equity Shares of Rs. 10/- each.
The Shareholding pattern of RNPL is as under:
| S. No. | Name of Shareholder | No. of Shares | % |
| a. | Aargee Property Services (P) Ltd | 80,000 | 26.58 |
| b. | Dokania Consultancy Services (P) Ltd | 80,000 | 26.58 |
| c. | Humalife Distributors (P) Ltd | 1,00,000 | 33.22 |
| d. | Others | 41,000 | 13.62 |
| TOTAL | 3,01,000 | 100 |
The main object of RNPL is real estate activities though it seems since inception it has not carried on any business activities. It is fully invested its funds in shares of other companies though it is not registered as NBFC. As mentioned above, private companies own more than 85% of its share capital which it seems was subscribed at a premium.
Information Regarding WILO SE / Seller :
WILO SE, Germany is a Promoter of MPF System Limited (Target Company), holding 18,87,697 Equity Share in Target Company. MPF System Limited is a subsidiary of WILO SE (‘the Holding company’ formerly known as WILO AG).
In November 2005, WILO SE acquired management control of Mather + Platt basically for its pump business, though it got MPF as a baggage.
Information Regarding MPF Systems Limited / Target Company :
MPF Systems Ltd till recently known as “Mather and Platt Fire Systems Limited”, is situated at Greaves Compound, Chinchwad Works, Bombay-Pune Road, Chinchwad (East), Pune -411019 Mather and Platt Fire Systems Limited (‘the Company’) was formed as a result of a demerger of Mather and Platt (India) Limited on 18th April 2001. Consequently, the business of fire systems was transferred to the Company and surprising like The Acquirer the target company also has no business activities since last few years.
The Authorized Share Capital of the Target Company is Rs. 5,00,00,000/- comprising of 50,00,000 equity shares of Rs. 10/- each. The issued, subscribed and paid-up capital of the Target Company was Rs. 3,40,26,470/- consisting of 34,02,647 equity shares of Rs. 10/- each. Recently through scheme reduction capital was reduced to Rs. 68,05,294 consisting of 34,02,647 equity shares of Rs. 2/- each.
The equity shares of the Target Company are presently listed on BSE Limited, Mumbai (“BSE”) (Scrip Code: 532470) and Pune Stock Exchange Limited, Pune (‘PSE’) (Scrip Code: MATPF-660286).
The equity shares of the Target Company are infrequently traded on BSE and PSE within the meaning of explanation provided in Regulation 2(1)(j) of SEBI (SAST) Regulations, 2011
The Shareholding pattern of MPF Systems Limited is as under :
| S. No. | Category of Shareholder | No. of Shares | % |
| a. | Promoter | 18,87,697 | 55.48 |
| b. | Public Shareholding ( Institutions) | 18,316 | 0.54 |
| c. | Public Shareholding ( Non – Institutions) | 14,96,634 | 43.98 |
| Total | 34,02,647 | 100 |
Mather + Platt is the brand of WILO Group and to get rid-off baggage which compelled it to incur a substantial expenditure of running the listed company without having any commercial benefits , it started preparing the company to sell and exit completely as a promoter. Last year it restructured balance sheet by write back of liabilities and selling its intangible for substantial value. And balance still reaming is adjusted by reduction of capital as mentioned above against debit balance in profit and loss account.
| Detail of Reduced Number Shares and Paid Up Capital after considering above Reduction of Capital
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| Particulars | No of shares | Face Value | Total in Rs. |
| Paid Up Capital | 34,02,647 | 2 | 68,05,294 |
Details of the Offer :
This Open Offer is being made under Regulations 3(1) and 4 of the SEBI (SAST) Regulations, 2011 to acquire up to 8,84,700 fully paid-up equity shares of face value of Rs. 10/- each of the Target Company, constituting 26% of the voting share capital of the Target Company at Rs.2/- per Share. Ashika Capital Limited is a manager to the Offer and it does not hold any shares in the Target Company.
Background Of The Offer :
The Acquirer has entered into a Share Purchase Agreement (‘SPA’) with the Promoter/Seller, WILO SE, of the Target Company on July 01, 2014 for the acquisition of 18,87,697 fully paid up equity shares of Rs. 10/- each, constituting 55.48% of the total paid-up equity share capital of the Target Company, aggregating to Rs. 17.56 Lakhs (Rupees Seventeen Lakhs Fifty Six Thousand only) (‘Purchase Consideration’/ ‘Negotiated Price’) payable in cash.
After the completion of this Offer, the Acquirer will hold the majority of the equity shares by virtue of which they will be in a position to exercise control over the Target Company which triggered the open offer obligation under Regulation 3 (1) and Regulation 4 of the SEBI (SAST) Regulations, 2011.
The object of acquisition is to acquire control of the Target Company.
Shareholding And Acquisition Details :
The present and proposed shareholding of the Acquirer in Target Company and the details of their acquisition are as follows:
| Details | No. of shares | % |
| Shareholding before the Public Announcement | Nil | NA |
| Shares acquired through Share Purchase Agreement which triggered off the SEBI (SAST) Regulations | 18,87,697 | 55.48 |
| Shares proposed to be acquired in the Offer | 8,84,700 | 26 |
| Post offer Shareholding | 27,72,397 | 81.48 |
Offer Price :
Equity shares of the Target Company are not frequently traded on BSE and PSE within the meaning of Regulation 2(1)(j) of SEBI (SAST) Regulations, 2011 as Annualized Trading Turnover does not Exceed 10% of Total Listed Equity Shares.
In accordance with Regulation 8(1) of (2) of the SEBI (SAST) Regulations, 2011 offer price should be highest of the following:
| Sr. No. | Particulars | Rs. |
| i. | Negotiated Price under agreement attracting Public Announcement. | 0.93 |
| ii. | Volume Weighted Average Price paid by acquirer during 52 Weeks preceding the date of Public Announcement. | NA |
| iii. | Highest Price paid by acquirer during 26 Weeks preceding the date of Public Announcement. | NA |
| iv. | Shares are frequently traded – Volume Weighted Average Market Price of 60 trading days preceding the date of Public Announcement. | NA |
| v. | Shares are not frequently traded– Price determined by the acquirer and the manager to the open offer taking into account valuation parameters including, book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies | 1.77 |
The Fair Value of the Target Company is Rs. 1.77 (Rupee One and Seventy Seven Paisa) as certified vide Valuation Report dated June 30, 2014, by M/s. Jignesh Goradia & Associates., Chartered Accountants.
In view of the parameters presented in the table above, in the opinion of the Acquirer the Offer Price of Rs.2/- (Rupees Two only) per share which its face value also is justified in terms of Regulation 8 of the SEBI (SAST) Regulations, 2011.
Effect Of Open Offer :
Pursuant to aforementioned Open offer for the acquisition of shares held by Public Shareholders, the Acquirer will hold a majority and controlling stake in the Company i.e. 81.48%. if the offer is fully subscribed .
Upon completion of the Open Offer, assuming full acceptances in the Offer, the public shareholding of the Target Company will fall below minimum level of public shareholding as required to be maintained as per Securities Contract (Regulation) Rules, 1957 as amended and the Listing Agreement, the Acquirer has undertaken to take necessary steps to facilitate compliance of the Target Company with the relevant provisions of Securities Contract (Regulation) Rules, 1957 as amended and the Listing Agreement, within the time period mentioned therein.
Since this takeover results in the transfer of Share by Foreign Shareholder to Indian Shareholder, Target Company needs to follow RBI guideline for transfer of shares from a foreign company to RI. Target Company has to file Form FCTRS including its supporting document with RBI within 60 days from transaction / Transfer of Shares.
Change in the Management / Composition of Board :
As a result of Takeover, following changes are done in the composition of The Board of MPF System Private Limited.
- Appointment of Directors w.e.f. 11th August 2014
- Mukesh Kumar Saraswat (Independent Director)
- Shailendra Kumar Patil (Independent Director); and
- Bijay Kumar Dokania
- The resignation of Directors w.e.f. 11th August 2014
- Hemant Chintamani Watve; and
- Bomi Firoz Daruwala
- Kiran Malhotra
- Markus Beukenberg
- Accepted resignation of Mr. Milind Khadilkar, CFO and Mr. Vasudev Savalgi, Company Secretary w.e.f. 11th August 2014
CONCLUSION :
MPF System Limited (Target Company) is incurring losses from last 5-6 years. Net Worth of the Company is also negative for the year ended December 2011 and December 2012 as mentioned below:
| Particular | 2013 | 2012 | 2011 |
| Share Capital | 3,40,26,470 | 3,40,26,470 | 3,40,26,470 |
| Reserve & Surplus | (2,95,59,686) | (5,65,42,088) | (6,42,08,434) |
| Net Worth | 44,66,784 | (2,25,15,618) | (3,01,81,964) |
In the year 2013, Net Worth of the company turned Positive due to booked profit from the sale of Intangible Asset of Rs.2,17,30,000/- and Write Back of Liabilities which is no longer required to the extent of Rs.1,40,12,459/-.
On the basis of above financials, we can conclude that Target Company cannot continue its operation as going concern any longer. There has to be changed in the Management of Target Company.
Market Price of Equity Share of Target Company is Rs.12/- but the fair Value of Equity Shares is Rs.2/- as the effect of Reduction of Capital under Section 100 of the Companies Act, 1956. So the decision of RNPL to acquire 8,84,700 Equity Shares of Target Company at Rs.2/- is within the law. However it seems that only reason to acquire is t o get the listed company status as neither of them carry on any business and considering main objects of both Acquirer and Target, there is no connection or synergy between two businesses.
