Wipro demerger: how investor friendly are the options?

Investors may have happily welcomed Wipro demerger, but the company’s scheme for the demerger is being criticised by proxy advisors.

Wipro has provided three options for investors: one, allotment of shares of demerged Wipro Enterprises which would host the consumer, lighting and other non-IT businesses; two, they can subscribe to preference shares that carry a 7 percent interest; three, they can exchange Wipro Enterprises shares with Wipro.

The catch in the whole scheme is that Wipro Enterprises will remain unlisted and the management in a conference call ruled out any chance of listing the company.

[caption id=“attachment_520415” align=“alignleft” width=“380”] The catch in the whole scheme is that Wipro Enterprises will remain unlisted. Reuters[/caption]

It is this plan that has been criticised by Shareholders Empowerment Services.

“If the management wants to convert WEL into an unlisted company, the best way would be to go for reverse book-building to delist,” proxy advisory firm Shareholders Empowerment Services was quoted as saying in a report in The Economic Times today.

Otherwise, the valuation will remain subjective and “cast a shadow of doubt over the demerger process”, it has said.

It has also said that the demerger has been structured to help Premji the Sebi norm of cutting stake to 75 percent. It said other companies are likely to take this as a precedent.

“While giving options appears to be investor friendly, it is apparent from the statement of the company that one of the options is designed to facilitate another objective relating to compliance with promoter holding,” SES has been quoted as saying in the ET report.