The Third Time's The Scam.


Fooled me once,
Shame on you;
Fooled me twice,
Shame on me;
Fooled me a third time,
And in came SEBI.


   When it comes to MNCs listed in India, premium valuations, competent managements, surging earnings and good corporate governance are certain hallmarks that define most of them. Exceptions, however, do dot the map, especially as far as that last criterion goes. And one exception just so happens to go by the name of AstraZeneca. All along, the Anglo – Swedish pharmaceutical giant has been more or less a dwarf in the Indian market, with only a small part of its vast drug portfolio being sold in the country. Seeing little purpose in being listed on the Indian markets and in the light of increasingly complex disclosure requirements mandated by SEBI, the company decided to delist in 2004. In its first delisting offer, or the reverse book – built offer, AstraZeneca offered a floor price of Rs. 825 / share, in order to go ahead with its delisting. Its Indian shareholders, who were avaricious to say the least, demanded a discovered price of Rs. 3000 / share. Needless to say, AstraZeneca dropped its delisting proposal. Its first attempt had ended in abject failure but it wasn’t done yet. One way or another, AstraZeneca still intended to exit the Indian markets.

     And so, in 2010, the pharmaceutical giant made a second attempt to exit the Indian bourses. It set a floor price of Rs. 576 / share and offered a maximum price of Rs. 1152 / share. This time around, the proposal was shot down by its shareholders in the postal ballot stage itself, as its scrip was trading well above the maximum price. Its second delisting attempt, just like its predecessor, had gone sour. AstraZeneca, however, was not willing to accept defeat. If it could not achieve its objective by hook, well then, it would delist by crook.

    While the company’s shareholders had played hardball in the past two occasions, this time around, the company decided to give them a taste of their own medicine. AstraZeneca, in a perplexing move, shut down its Bangalore plant for a review of its manufacturing processes. Consequently, its sales crashed and profits sank. When this happened, the company’s stock tanked. While the British parent held 91% in the Indian arm, it also had to comply with the SEBI norm of a promoter shareholding capped at 75%. Thus, AstraZeneca conducted an offer for sale (OFS), with the entire 16% chunk of shares being allotted to a Hong Kong – based foreign institutional investor, the Elliott Group, despite the fact that the OFS was oversubscribed to the tune of three times and there was a large investor base willing to absorb that said 16%. When AstraZeneca announced its third attempt at delisting in 2014, its plant closure move, which had baffled analysts and the trade alike, suddenly made perfect sense and took on a sinister edge.

    A falling stock price would arm - twist shareholders to tender their shares cheaply, enabling the company to exit the Indian markets. While a successful delisting needs a minimum post – offer promoter shareholding of 90%, it is alleged that AstraZeneca’s recent attempt at delisting in 2014 would result in the Elliott Group colluding with the company and offering its entire stake, which would enable the delisting to sail through. In fact, investors allege that AstraZeneca allotted the entire 16% to Elliott, on the condition that Elliott would tender the entire stake in the reverse book – built offer, leading to AstraZeneca’s delisting turning out to be a success and the company finally being able to pull away from the Indian bourses. It looked like the third time would indeed be the charm for AstraZeneca.

     However, SEBI soon smelt something fishy and instructed the stock exchanges to ensure that any delisting offer from the Anglo – Swedish giant turned out to be fair and transparent. The Securities and Appellate Tribunal (SAT), in September 2015, also instructed SEBI to complete its investigations and produce a final order in six months. Going by SEBI’s track record of favouring minority shareholders and clamping down on MNCs that tried more than a trick or two in the past, à la Fresenius Kabi, AstraZeneca might just have some serious explaining to do. 

     In December, the company announced that it was shutting down its active pharmaceutical ingredients (API) plant in Bangalore, citing low demand. As far as its delisting goes, its fate is mired in uncertainty until SEBI’s order shows the next step. Indeed, the company might face more hurdles in its long – cherished delisting desire. While the third time is usually the charm, in this case, with SEBI now involved, it increasingly looks like a scam. And as far as AstraZeneca goes, there might just be a bitter pill to swallow. 

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