After 5 months of wrangling among PNB Housing, Carlyle, SEBI & proxy advisors, the deal was called off voluntarily. Carlyle and PNB Housing felt that in the light of the regulatory uncertainty, there was no point in still pursuing the deal.
Background to the deal
Back in May this year, PNB Housing had struck a deal to do a private placement with Carlyle PE, which would make them the largest shareholder in PNB Housing. In return, Carlyle would infuse Rs.4,000 crore into the company giving it the much-needed liquidity infusion and also helping PNB Housing boost its capital adequacy ratio. Its parent PNB was not in a position to infuse fresh capital, so raising money from outside was the only option available. PNB would have also managed to reduce its stake via Carlyle.
What was the dispute all about?
The dispute arose on 3 grounds. Firstly, the price was regarded as too low and not in the interest of small owners. That view was later vindicated by doubling of the price in a few weeks. Secondly, the deal did not have independent opinion on valuation, which was the norm for such deals of significance. Lastly, the proxy advisors had a more basic query on why PNB Housing had opted for a placement over a rights. The net effect was that with the SEBI getting involved, PNB did not want to be on the wrong side of the deal. That nixed the deal.
Setback for Carlyle and Puri
With the deal being called off, it will be a setback for Carlyle, but it is a bigger hit for Aditya Puri, who championed this deal as advisor to Carlyle. In addition, his company Salisbury Investments was also a likely investor in PNB Housing. One of the reasons the stock of PNB Housing had gone up sharply was the hope that Aditya Puri would drive the business at PNB Housing. After all, that is a formidable name, especially with what he had delivered at HDFC Bank. The deal will be seen as a setback in that they underestimated the proxy advisors; which triggered the debate.
It is good news for governance
The PNB Carlyle case should be seen as part of a larger trend where institutional investors are playing a larger role in holding managements accountable for decisions. We have seen that in the case of Zee Entertainment and Dish TV, as well as in the recent cases of Lupin, Eicher and Finolex. In all these cases, the institutional investors played a more active part but proxy advisors also did play a very critical role. PNB Housing deal was clearly stitched in a way that it favoured Carlyle at the cost of existing shareholders of the company. The good show put up by proxy advisors in this case as well as the proactive role played by SEBI, will go a long way in making companies more careful in future. It is good news for corporate governance.
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