gfiles magazine

January 7, 2015

Unlocking value for shareholders

corporate market value

Owner groups should understand that the long-term interests of different shareholder groups, be it minority or majority, are always aligned

Companies must be managed in a manner so as to create maximum value for all its stakeholders. Over the past few years, several corporate houses have tried and undertaken various steps such as demerger, delisting, buyback, open offers and so on. However, there is hardly any example of a holding company unlocking intrinsic value, especially for its minority shareholders. We all know, in India it is not unusual to find holding companies quoting at massive discounts compared to the sum of the parts valuation of their constituents. At times, these discounts can go up to as much as 70-90 per cent of the sum-of-the-parts valuations of quoted/listed investments. Some of the reasons cited for such discounts are poor corporate governance, inconsistent or volatile dividend policies and numerous deterrents in friendly/hostile takeovers. Also, in several situations, formation of these holding companies appears irrational; the parts of holding companies are completely unrelated businesses serving no purpose or logic except helping promoters or promoter-families continue their control.

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