ADAG firm puts spanner in Fame-INOX deal

A takeover battle looks imminent between Fame India and Reliance MediaWorks, with the latter accusing the multiplex theatre chain of rejecting its higher offer price in favour of Gujarat Fluro Chemicals-promoted INOX Leisure.

In an e-mail written on February 4, the Anil Dhirubhai Ambani Group firm has asked Fame's promoter Shravan Shroff to explain why he sold his family's 43.28 per cent in Fame India to INOX Leisure for Rs 44 a share when Reliance had made a 'firm offer' to buy it for Rs 80 a share.

The Fame-INOX deal was announced last week, following which the Shroffs have given up management control of the theatre chain that has since become an INOX subsidiary. 

The email, written by Reliance MediaWorks CEO Anil Arjun, says although the owners had every right to sell their shares freely, 'in a situation involving a listed public limited company with 57 per cent public shareholding, there are larger issues of fairness, transparency and legal compliance, including protection of the interest of minority retail shareholders'.

Reliance MediaWorks is expected to approach the Securities and Exchange Board of India as the next step if the issue is not resolved. 

Questions are also being raised on why the Shroffs did not ask for a control premium on their shares, which is the general practice when the promoters surrender management control.  

Arjun's e-mail says, "Over the past two weeks we have confirmed our definite intention in several meetings with you and your family to buy the . . . stake at an aggregate price of Rs 80 per share."

In his e-mail Arjun added that he would be sending a copy of the letter to the merchant bankers involved in the deal (YES Bank  for Fame and Enam for INOX) who were fully aware of the price "as they have serious responsibilities under the Sebi takeover code".

A source close to Sebi told Business Standard there was no legal sanctity to a price unless the two parties concerned (Reliance MediaWorks and the Shroff family) sign a memorandum of understanding (MoU) setting out the terms of the deal.

 "If there is no such MoU, the bid will be considered hostile," said the source.

He added that it is not essential for a promoter to sell his shares at the highest price -- other issues may determine his decision, such as a non- compete agreement, his role in the company and so on. 

Meanwhile, Reliance Capital Partners, another ADAG firm, bought over 3.4 per cent through the open market last week, a few days after the deal with INOX was announced.

Asked about the pricing differential, INOX Leisure director Deepak Asher said the company acquired the Shroff family's stake through a bulk deal at the prevailing market price.

"We then bought an additional 7 per cent through the market operations to up our stake.  We are now in the process of announcing an open offer for another 20 per cent."

Sources in INOX added that they had also agreed to take on Rs 90 crore (Rs 900 million) worth of Fame's liabilities, which is why it paid a lower price per share.

The deal is important for INOX, since the 95 screens that Fame owns will take its total screen tally to 205, close to ADAG's BIG Cinemas which is the country's largest chain with 242 screen.

The deal will push PVR Cinemas, till now the second largest, to third position with 108 screens even after its deal to buy DT Cinema.

The acquisition will include Fame's food and beverage subsidiary, Big Picture Hospitality Services, its film production firm Headstrong Films and its film distribution arm, Shringar Films.

Fame India shares went up almost 5 per cent on Friday to close at Rs 53.30.