Investment Advisory Service

Thursday, 10 May 2012

Delhi Diary

Where would one normally find bouncers ? Usually discotheques. 

But the place I went to recently had a different setting. It neither had neon lights nor did it looked like a disco. However, more than the numberof ordinary people in the room, there were bouncers or should I say pehelwans. I read the banner carefully and verified with the gentleman sitting next to me. It was indeed the venue of the AGM of R Systems International Limited.

It baffled me that why does a company need bouncers ? Sure we have heard and seen shareholders baying for each other's blood for a box of Haldiram's sweets. But never did any company had to employ bouncers to solve such crises. The crisis in R Systems is much graver than that. This company is facing a hostile take over bid from one, Mr Bhavook Tripathi. I had earlier written about it here and here.

In the agenda items of the AGM, the management had proposed a special resolution which envisaged alterations in the articles of association of the company. The proposed amendments were that nobody except the promoter group can take any decision regarding merger, liquidation of any asset, providing any loan to any other entity, special dividend , removal of executive directors etc. Basically all the ingredients of making the company unattractive for any hostile takeover bidder. But the defeat of this special resolution was a forgone conclusion as Mr Tripathi holds 32% stake in the company and the special resolution would have been vetoed out. Sensibly, the company decided to withdraw the special resolution before the AGM to save face.

Meanwhile SEBI has not processed the open offer made by Bhavook Tripathi and even the committee of independent directors of R Systems has not come out with the recommendations on the open offer.

Though on the face of it the promoters of R Systems own 49% in the company and it is difficult to dislodge them but the discomfort in the behaviour of the company and the promoters seems to tell a different story.

Even Ravana (original character, not Abhishek Bachchan) used to think he is invincible till his younger brother Vibhashana revealed the secret of of his death to Rama. Who knows what secret about R Systems does Bhavook Tripathi has up his sleeve ?

Disclaimer : This does not constitute investment advice and I don't have any position in this stock on the date of posting this entry.


Karl said...

Interesting update Ankur. The company is now proposing a special interim dividend. What could be the primary motivation for the same? I'm holding this stock for the last two years and am watching from the sidelines with great interest.

Ankur Jain said...

Hi Karl,

Motive is to strip the the cash out of the company and make it unattractive for the bidder.

Also remember that after the dividend the open offer price of 150 will stand adjusted downwards by the amount of the dividend.


Ekram said...

Hi Ankur,

I cant seem to find the copy of the Notice where the proposal to change the AoA are mentioned and the specific proposal. Already checked the BSE website.

Do you have a copy of the proposal to change the AoA and what the exact changes they were proposing to make in Item 8 (the company's words)


Ankur Jain said...

Hi Ekram,

Yes, I have the notice for the AGM which contains proposal to change the Articles of Association.

Can scan it and send across.



Ankur Jain said...


The notice to amend the articles of association is appended in the annual report (AR 11) of the company. The annual report is available on BSE.


Anonymous said...

The company as it moves to become a more mature company is shifting gears and I think it feels very comfortable paying higher dividends due to a better liquidity position. This is definitely a pro shareholder company that should be rewarded. I have followed this company for a while and feel that management with a strong track record and a IIT CEO has delivered results consistently. The dividend payout does not imperil the company as he company has strong cash reserves and I also feel good accretive acquisitions have helped bolster the reserves. I do wonder when the open offer will be approved. The potential hostile takeover may not go anywhere due to a clear majority held by the promoters.

Anonymous said...

It seems imminent that there will be another upward revision to the open offer, nearly to around 190 levels. Even promoters may have to come up with reverse open offer, the way the things are shaping.

Anonymous said...

Any update on this Ankur?

Ankur Jain said...

Hi Anonymous,

The company tried to stall the open offer by filing some complaints with SEBI against the acquirer. SEBI has overruled those complaints.

Meanwhile ,the promoters of the company are buying almost everyday from the open market around a level of 165.

The open offer is pending since the acquirer Mr Bhavook Tripathi has appealed against the SEBI order which required the acquirer to calculate the offer price with respect to a different reference date , pay interest for the delayed period and also put 100% of the money required to complete the open offer in an escrow account. The matter is pending in SAT as of now.

Anonymous said...

Hi Ankur,

Thank you for the update.

Noticed this update as well