In January 2019, Maharashtra-based Prabhat Dairy’s shareholders seemed primed for a windfall. The Indian dairy sector had drawn a lot of interest a lot of interest The Ken Drums has the fuel, can Danone provide the spark? Read more from foreign giants, and the company had found a rich suitor. It announced plans to sell off the majority of its business to Tirumala Milk, the Indian subsidiary of French dairy major Lactalis for Rs 1,700 crore ($234 million).

It seemed a healthy outcome for investors, especially given the stock’s roller-coaster journey. From a watered down issue price of Rs 115 ($1.6) due to tough market conditions when it listed in 2015, the stock doubled to about Rs 230 ($3.2) by early 2018. By the end of 2018, however, it was down to below Rs 100 ($1.4).

The implied share price in the Lactalis deal, going by total deal value, was about Rs 175 ($2.4). Of course, there would be tax and other costs to be paid by Prabhat Dairy. Still, net-net, it seemed a good deal.

The sale would happen in two steps. First, Prabhat Dairy and its subsidiary Cheese Land Agro would sell their stakes in Sunfresh Agro Industries to Tirumala Milk Products for Rs 1,227 crore ($169 million). This would give Lactalis 100% ownership in Sunfresh Agro. Next, Prabhat Dairy would transfer, in a slump sale slump sale slump sale A slump sale is one where an undertaking is sold without considering the individual values of the assets or liabilities contained within the undertaking transaction, its dairy products business to Sunfresh Agro Industries for Rs 473 crore ($65 million). Thus, Lactalis would pay Rs 1,700 crore ($234 million) in total for the dairy business of Prabhat Dairy.     

At that time, Prabhat Dairy professed its intention to share a substantial portion of the sale proceeds with shareholders after meeting ‘tax and transaction costs’.

Cut to today, and the public shareholders—who hold 49.9% of the company—are yet to see a dime.

While the deal closed in April 2019, the story has taken many twists and turns since then. Despite committing to delist and distribute the sale proceeds to shareholders, Prabhat Dairy still hasn’t done so, leading to an ugly and protracted battle with investors.

 Miffed minority shareholders have approached market regulator Securities and Exchange Board of India (Sebi) complaining of whittled down proceeds and fraud. A forensic audit recommended by the bourses and ordered by Sebi has dragged on for over a year now, which further complicates matters as the regulator made the delisting contingent on the audit’s findings.

AUTHOR

Anand Kalyanaraman

A certified Chartered Accountant, Anand chose to pack the power of numbers with words when he left a career of seven years in accounting, putting together MIS reports, and investment research to enter journalism. Before joining The Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he worked at for 11 years.

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