Proxy firm slams Wipro arm's move to go private

The decision of Wipro Enterprises Ltd (WEL), the demerged consumer goods arm of software major Wipro Ltd, to offer an exit option to its minority shareholders has irked one of the proxy advisory firms. Stakeholders’ Empowerment Services (SES) has raised concerns the move might unfairly give 50 per cent stake of the Wipro brand to what will now become a private firm of the promoters.

SES has said in a report: “Most of the shareholders in Wipro had originally invested in a liquid investment. SES believes providing investors illiquid, that is unlisted, securities of WEL was highly unfair. SES is of the opinion that WEL’s present proposal to cancel and extinguish the shares held by non-promoters exposes the possible plan of promoters to make the business private and transfer 50 per cent ownership of the ‘Wipro’ Brand to WEL. The Wipro Brand is not known for its personal care products or office furniture or hydraulic solutions but is largely known for its IT (information technology) business.”

SES argues the ownership of the Wipro brand, developed over a period of time due to the growth of the IT business, cannot belong equally to Wipro and WEL. “If at all the brand is separated, it should be owned by WEL in proportion of its turnover or profit or assets or a combination of any or all the factors,” the advisory firm says.

Further, the possibility of WEL becoming a listed company after the exit of minority shareholders has not been expressly ruled out by the company. SES concludes: “If at all this happens, it will be detrimental to the interests of minority shareholders. In view of the above, WEL’s proposal to reduce its share capital is against good-governance practices and against minority shareholders’ interest.”

An email questionnaire sent to Wipro seeking details about the capital reduction and exit option last week remained unanswered.

In November 2012, Wipro Ltd demerged Wipro Consumer Care & Lighting (including the furniture business), Wipro Infrastructure Engineering (hydraulics & water businesses), and Medical Diagnostic Product & Services (through its strategic joint venture) into a separate company, Wipro Enterprises Ltd, or WEL. After the demerger, Wipro Ltd remained a publicly listed company focusing exclusively on IT, while WEL is an unlisted company. The Wipro brand is jointly owned by both companies. Now, WEL has called an extraordinary general meeting on January 13 to discuss reduction of share capital and payment to non-promoter shareholders. WEL has proposed to cancel and extinguish 16.18 million equity shares of Rs 10 each held by non-promoter shareholders. Ernst & Young LLP has completed the valuation of the shares of the company and suggested a value of Rs 367 apiece.

SES has pointed out that the Wipro demerger in 2012 was designed in such a way that the minority shareholders were forced to give away their stake in the unlisted company. Prior to the demerger, the promoters' shareholding in Wipro Ltd was 78.31 per cent and non-promoters’ 21.69 per cent. “Therefore, after the demerger, non-promoters’ shareholding in Wipro Ltd and WEL should have been 21.69 per cent. Since most of the investors did not wish to keep illiquid investment, they opted for Wipro Ltd shares instead of WEL. As a result, the present residual non-promoters’ shareholding in WEL is around 3.40 per cent,” the note says.