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INDIA BUSINESS WORLD - October 1st October 15th 2008
BENEFIT TRUST TO HOLD 8.7% STAKE IN MAHINDRA & MAHINDRA
MAHINDRA & Mahindra (M&M) has taken a leaf out of ICICI Bank’s book. It has created a trust, which would hold 8.7% stake in the company, after merger of two subsidiaries, Punjab Tractors and Mahindra Holding Finance, with itself. ICICI Bank had adopted a similar move six years ago.
The trust has already acquired a 4.96% stake in M&M due to the merger of Mahindra Holding Finance with itself. It’s holding will go up to 8.7%, after the merger of Punjab Tractors with M&M. The merger of Punjab Tractors is expected to be completed next month. The trustees are M&M group CFO Bharat N Doshi and executive director A K Nanda.
“This trust gives us the flexibility to place shares at an appropriate time to meet the fund requirements of the company,” said Mr Nanda. Another M&M official said the trust cannot hold these shares in “perpetuity.” The shares have to be sold within three to five years in order to unlock value for M&M shareholders, he added. The trust, M&M Benefit Trust, would house shares of M&M which would have been otherwise extinguished due to the merger.
The corporate lawyers said the shareholding of the trust could come in handy for the company to thwart any takeover attempt in future. “This will ensure that the promoters have an indirect support line at the time of voting on any crucial resolution as well receive tax benefits. Given the nature, the trusts are not expected to vote against the promoters,” said Shuva Mandal, a partner with Fox Mandal Little. The promoters hold nearly 22% stake in M&M which, post merger and subscription of convertible debentures, would go up to 23.2%.
M&M holds 64.64% stake in Punjab Tractors. In July 2007, M&M had acquired 63.33% stake in Punjab Tractors and another 1.31% stake in the company was held by its wholly owned subsidiary, MHFL.
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