Disinvestment of PSUs:Leaving money on the table

Document Type

Article

Publication Title

Economic and Political Weekly

Abstract

The Securities and Exchange Board of India (SEBI) takeover regulations state that bidders acquiring control of a public limited company are mandated to make a public offer for an additional 20 per cent of the outstanding shares at a predetermined (offer) price. We show that the takeover guidelines could cause a transfer of wealth from the majority shareholders to the minority shareholders. As a result, lower proceeds (than otherwise) are raised in disinvestments involving strategic sale of PSUs with a public float. The magnitude of this problem is discussed by analysing TCS's acquisition of CMC in 2001. Further, we also present a framework that can be used to mitigate the wealth transfer. In the TCS acquisition of CMC, we show that a simple implementation of the framework could have raised the proceeds by as much as 6 per cent, and possibly more.

Publication Date

1-4-2003

Publisher

Sameeksha Trust

Volume

Vol.38

Issue

Iss.10

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