Gold Silver Reports — Big Cos Take Demerger Route in Chase for Gold — Companies are turning nimbler than ever and promoters opportunistic. Call it value unlocking or corporate strategic realignment, the rich valuations commanded by certain businesses on the Street have seen companies making a beeline to demerge parts of their businesses which are in vogue on the Street .
The unprecedented valuations commanded by non banking financial companies on the bourses prompted Max India at the beginning of this year and Aditya Birla group earlier this month to hive off their financial services companies into separate listed companies.Crompton Greaves last year moved to demerge and list its most promising business of consumer electri cals at a time when consumption stocks have been commanding premium amid economic slowdown. Fortis Healthcare is the latest to join the bandwagon with plans to demerge and list its diagnostics business at a time when the recently listed diagnostics firms Dr Lal Pathlabs and Thyrocare are trading at tempting valuations.
Demergers have historically proven to create value for share holders. “However, promoters in such demergers end up getting disproportionately higher value than the other shareholders“, said a fund manager. The fact that some demergers like Crompton Greaves, Aditya Birla Nuvo and Fortis are knotty with a web of cross company holdings raises questions on promoters benefiting at the cost of the public shareholders. “Many companies are holding ownership in their profit-making subsidiaries at the cost of minority shareholders“, said investment advisor SP Tulsian.
The market punishes cases where the merger is not clean. Last year, Crompton Greaves had to alter its business restructuring plans after the Street frowned upon the ownership structure in the scheme to demerger the consumer products division . — Neal Bhai Reports