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Thursday, February 7, 2013

McDonald India franchise Hardcastle reverse listing-many questions unanswered


Nearly two months ago, the Jatia family surprised the stock markets by announcing the reverse merger of their family jewel Hardcastle Restaurants(which operates the McD franchisee) into their publicly listed shell company Westlife Developments. The shock and awe tactic unfolded in December first week, when the company announced the reverse merger, along with the bonus issue, corporate restructuring http://articles.economictimes.indiatimes.com/2012-12-13/news/35796999_1_hardcastle-restaurants-mcdonalds-market-cap  The share price promptly doubled and has been in the upper circuit ever since. However, poring into the filings, a different and surprising picture emerges
  1. Why were 'non promoter' shareholders gifted 10.81% of the company free via bonus shares only to them? The company had announced that to meet the SEBI minimum public listing requirements, 'non promoter' shareholders holding 14.29% of the company(before bonus) were now given 1:1 bonus shares, to bring their total holding to 25%. Note that this did not compensate the promoters for their stake dilution, not did the company receive any fresh resources. It could have met the requirement by Mar-13, or even done a QIP(Qualified Institutional Placement). That it chose to give bonus shares, seems either very generous promoters, or else some possible extraneous considerations due to tax planning etc! Given the concentration in non promoter shareholding, as also the fact of shareholding changing hands for very short periods to an erstwhile employee, this is quite a possibility. I do not see the rationale of rewarding the FII(New leaina investments) otherwise. 
Stake%
PostBonus
Sep-12
Jun-12
Dec-11
Sep-11
Mar-11
Rajiv Himatsingka
15.70%
8.97%

13.81%
13.81%
14.06%
Gaurang Agarwal


8.97%



New Leaina Investments
8.47%
4.84%
4.12%



Source:- Moneycontrol.com shareholding pattern disclosures


  1. Why does the press release give the picture that merger is 'contemplated' when the fact remains that merger has already happened. To be fair, the press release talks about 'Westlife Development Ltd proposes merger to make Hardcastle Restaurants a direct subsidiary' , which strictly speaking means what they are doing-a scheme of arrangement to amalgamate the holding company layers. But this does not result in any change in economic ownership(ok agreed that indirectly the Jatia family still owns stake in the intermediate companies, but minority stake at that). The fact is since HRPL was acquired before closing of FY12, merger happened de-facto
  2. Why does the annual report differ from the Clause 41 annual audited accounts filed with SEBI? http://www.bseindia.com/bseplus/AnnualReport/505533/5055330312.pdf contains the financials with the effect of the merger, while the filing with BSE(on the same date) http://www.bseindia.com/corporates/AnnPdfOpen.aspx?Pname=Westlife_Development_Ltd_071212_Rst.pdf|1 contains numbers as if no amalgamation had taken place 
This would make an interesting case study some day, especially the answer to #1

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