Professional Documents
Culture Documents
POOJA GHODDHYAN - 09FT124 RHEA GHOSH - 09FT126 SHIRISH GANESAN - 09FT145 SUSHANT AGARWAL - 09FT158 VARUN SETHI - 09FT170
Introduction
HUL formerly known as HLL is Indias largest consumer
products company with an annual turn over of Rs. 13,000 Crores (2007)
Brooke Bond is a brand-name of tea owned Co by Unilever,
formerly an independent manufacturer in the United Kingdom, known for its PG Tips brand and its Brooke Bond tea cards.
Merger of
Hindustan Vanaspati Manufacturing Company(1931)
HLL
Brands like Lifebuoy, Lux, Surf Excel, Rin, Fair and Lovely,
Ponds , Sunsilk the list is endless Boost for HLL in India: Liberalization of Indian economy in 1991 Removal of Regulatory framework
acquisition in 1984. Unilever acquired Lipton in 1972. Brook Bond and Lipton Tea Ltd were merged in 1993 to form BBLIL.
insider trading by SEBI against the merger of HLL and BBLIL Controversy - Illegal purchase of BBLILs 8 Lakh shares by HLL, prior to public announcement of their merger. SEBI: suspected insider trading and conducted enquiries. SEBI issued a show cause notice to HLL.
INSIDER TRADING ?
a company who has price sensitive information about the company. It can be both legal as well as illegal. Having special knowledge is unfair to other investors who are oblivious to any such information.
INSIDER TRADING
Insider trading is for listed companies only. Merchant bankers and intermediaries come under the purview . Punitive in nature It is defined what constitutes insider trading
and combining of different companies for synergy. Merger is what concerns us - this may fraught a stock swap or cash payment. Stock swap - The ratio in which an acquiring company offers its own shares in exchange for the target company's share.
WHY MERGER ?
Eliminate competition. To manage growth. To reduce operating costs. Expansion plans- venturing out into a different field. To be able to control pricing.
Entities Involved
THE MERGER
Merger was certain as HLL had started consolidating. The big question was WHEN would the merger take place. There was no formal announcement from the companys side,
however speculation about the same had been doing rounds in the market.
Sequence of events
350.35 per share. Transaction took place on March 25, 1996. On 19 April 1996, HLL notified the stock exchange of its proposal to merge with BBLIL. A day after the announcement of the merger, BBLIL scrip quoted @ Rs. 405 leading to a gain of 4.35 Crores for HLL.
SEBIs crack down with Indias first ever guilty verdict for an
The Allegation
claiming that there was prima facie evidence of the company indulging in insider trading.
Alleged HLL of using price sensitive information prior to its
SEBIs Verdict
suggests that the HLL management was almost certain and all geared up for the merger.
March 1998, SEBI found HLL guilty of insider trading as it had
bought shares of BBLIL from UTI even when it was completely aware that a merger was impending.
Case Analysis
fraud.
Pragmatic evaluation of insider trading - An onerous task. HLL and BBLIL were under a common management - This
HLLS Contention
No company can be an insider to itself Transactional knowledge existed as it was a primary party to the
merger and not because BBLIL was an associate company. It further endorsed its argument by stating that allegations would not have been made if HLL had purchased shares of TOMCO - as the two were not associated.
HLLs Arguments
wasnt known to HLL or its directors when the BBLIL shares were purchased.
The news of the merger was not price-sensitive as it had been
merger was known in the market. It was giving speculation as a justification for its clandestine behavior. In fact BBLILs management also concealed information of the merger. It could have informed UTI about the merger when the latter held 8 Lakh shares.
Cont
HLL agreed that shares had been bought with the sole intention of
regulations clearly defines insider trading irrespective of the fact whether profits have been made or not.
of preferential allotment could have been adopted by HLL. Such a step would have involved various compliances/clearances, and required Unilever to bring in substantial funds in foreign exchange. The implication: HLL depleted its reserves to ensure that Unilever did not have to bring in additional funds.
Cont
it would have been detrimental for other shareholders- would lead to a lower EPS.
Cont
unpublished price-sensitive information which is prohibited under Section 3 of the Regulations. Section 2 (k) states that unpublished, price-sensitive information relates to amalgamations, mergers, and takeovers or is of concern to a company and is not generally known or published. SEBI held that there can be no dispute that the information of the overall fact of the merger fell under this definition.
Conclusion
insider trading. All points in this case indicate a clear case of insider trading. Merger definitely price sensitive information. HLL depleted its reserves for one specific shareholder at the expense of other share holders- violation of corporate governance.
On a lighter note