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Land wars

Recently, at SV Global Mills Limited (a Binny Group Company), the promoter group led by M Ethurajan and his son E Shanmugam has wrestled control from its veteran director Natarajan, another promoter who steered the company through difficult times.

At the AGM, the shareholders rejected the re-appointment of S Natarajan as a director of the company’s board.  Given that SV Global is a listed company, this triggers speculation that SEBI may ask for Open Offer process to be implemented in accordance with SEBI’s Takeover Code. At the heart of the whole issue is land and properties worth Rs 2000 crore.

When John Binny founded Binny and Co in 1797 as a clearing and forwarding agency (which later ventured into textile business as Buckingham Mills in 1876, followed by the Carnatic Mills in 1881) he would have never imagined that the company would one day, be fought over the real estate the company holds.  Two centuries later the landbank value held by the ex-BIFR Binny Group Companies exceeds well over 6000 crore.


Splitting the group to 3 companies

John Binny established Binny & Dennison in 1799. The firm was an agency house representing British interests in South India.  Over the years Binny Group evolved by amalgamation of various textile and allied companies like the Buckingham & Carnatic, Banglore Woollen, Cotton & Silk Mills, Madura, Ganges Transport & Trading, Binny & Company and Binny’s Engineering Works.  

In 2012, the shareholders of Binny Group voted for a demerger to amicably settle ownership issues.  The goal was to distribute the company’s landbank  in fair measure to promoters.  This would be done by splitting the group into 3 different companies.  The demerged businesses are called Binny, Binny Mills and SV Global.   

As per the demerger, S V Global Mill went to M Ethurajan and his son E Shanmugam, Binny Mills to V R Venkatachalam  and the existing Binny to M Nandagopal.  The fourth promoter, S Natarajan, remained the common promoter with nearly 19 per cent stake in all the entities.  All four promoter groups together hold 75 per cent while the rest 25 percent is held by the general public.  After the demerger, the promoters transferred shares in companies, which one did not control in favour of the one who would be controlling it.  Public shareholding in all the three demerged remained at 25 per cent.

 

Promoter feud at SV Global Mills

The present feud arises because the promoter group led by M Ethurajan and his son E Shanmugam, want to retain the entire control over the company.  However, this does not seem to go down well with Natarajan, a veteran promoter director who was also one of the original four promoters of Binny when the Udayar group took over the sick textile company in 1987.  

It must be noted that  Natarajan is widely acclaimed for reviving the fortunes of the 200-hundred-year-old textile company and also credited to have taken the company out of the clutches of BIFR thereby unlocking the potential of the company’s real estate.

If the company was still with BIFR, every decision by the shareholders or the Board of the company  would require approval by the BIFR board,  which in business terms made any deal simply unworkable.

 

Will SEBI Takeover Code kick in?

If all the procedures of Companies Act 2013 had been duly followed and the majority of shareholders had decided to side with M Ethurajan against his re-appointment, then in all fairness, that decision must be respected.  However if procedures have been violated then Natarajan can approach the Company Law Board or National Company Law Tribunal as the case may be.

 

How to solve the dead lock at SV Global?

Ideally, the Udayar Group can sit with Natarajan and identify lands which can be transferred to Natarajan for his 19 percent stake in the company.  The company can again be demerged into two new entities with the approval of court.  Courts generally accord approvals unless creditors or any other stake holders raise objections. This way the group can solve its problem rather than enter into long legal battles which helps only their law firms.  

Any other compromise can also happen.  If such compromise happens, in a year we can hope to see ‘new gated premium real estate projects’ with swimming pools and jogging tracks on the Binny Mills properties.

 

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