Clariant Chemicals' sale of business - no clarity here!

Lets play a small word association game. I will write a word and you say the first thing that comes to your mind upon reading the word..


1. Stock market  (Most of you will probably say high returns, volatility, manipulation, satta, etc)

2. Government  (Most of you will probably say lethargic, corrupt, unreliable, etc)

3. Wife  (Dangerous territory..so no comments from my side)

4. MNC Management  (I am sure most of you will say high quality, clean, professional, fair, etc)


Well, such has been the record of managements of MNC subsidiaries that we generally associate them with everything goody goody. A lot of these companies have been prolific wealth creators for investors over the years. And hats off to these guys.

But, it is not necessary that all MNC managements would be great, fair, transparent and professional. This is not something we can take for granted. Such representativeness bias can be highly dangerous to investors.

Lets take the recent happenings in an MNC subsidiary, Clariant Chemicals India Ltd.

Whenever the name Clariant Chemicals is mentioned, I have always seen experienced investors going gaga about the company. And rightly so. The company has grown profitably and has distributed liberal dividends. So, when the global CEO said in December 2011 that they aim to reach Rs.4600 cr in India sales by 2016/17 (CY11 sales were just Rs.1000 cr), investors sat up and took notice. Of course a management of this quality would have a broad plan under which they were making such claims right? Sadly, that doesn't seem to be the case. Not only have the sales been flat in 2011 and 2012, but recently, the company has announced sale of a large chunk of the Indian business (as a result of sale of the global business unit). Now how will the sales grow to the levels promised is beyond my understanding!!

First, let us look at this deal. The global Textile Chem, Paper Specialties and Emulsions business of Clariant (including Clariant India's business unit) are being sold to SK Capital for about Rs.3000 cr. Since Clariant India's business unit will also be sold, Clariant India will get part of this money. Well, sounds ok.

What is not ok is the way Clariant India has treated minority shareholders regarding this deal.

On 26/03/2013, Clariant India put out an announcement saying that Clariant India will get Rs.209.15 cr out of the total pot for sale of the mentioned businesses. From where did this sacrosanct number come was not given. To be fair, what is being given to Clariant India seems to be a good deal. The global business was sold at about 0.45x sales, while the India business is being given 0.6x sales. We have no idea about the India business profitability though! I was waiting for the postal ballot for this to be published, which would give more details and justification for the deal and what Clariant India is receiving.

I thought that decent clarifications and info will be given when they give out the notice for the postal ballot on this issue. (Since this sale cannot be done without the approval of shareholders).

However, I was absolutely shocked when the postal ballot was put up on BSE. It seems like the management is totally taking the minority Indian shareholders for granted.

Consider this.. the postal ballot is basically to ask the shareholders whether they are ok with the sale of the mentioned businesses for Rs.209.15 cr.
Now, if you want to take a proper informed decision whether to say yes/no on this, you will need info about the business being sold, right?

Shockingly, the explanatory statement to the postal ballot simply states that "TPE business contributes about 35% to the net sales of the company and includes a manufacturing plant for textile products situated at Roha". Thats it!!!!!!!!! It gives absolutely no more details about anything!! So how would you say yes/no to this resolution for selling the business? They are just not giving you any info!!

• So basically, does the Board want us to blindly trust whatever they say as true and fair? 
• Nothing has been mentioned as to who did the valuation, how was the number arrived at?
• We do not know how much profitability will reduce, how much fixed assets will go out? In short, there is virtually no info given on how much would the remaining business be like?
• So what purpose will this postal ballot serve? How does the Board expect shareholders to take a decision, when they are just not providing any info to take the decision?!

The Board does not seem to take into consideration the minority shareholders' opinion for this. It seems as though they are saying 'look this is what we have decided, just agree to this'. Not the best in terms of corporate governance, eh? I would request all shareholders to oppose this resolution and spread the word to everyone you know to oppose it.
This is just not done.

If things like this continue, then the 'management premium' that the valuations of MNCs were getting will soon turn into 'management discount'!!

Cheers and happy desi investing!!

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