Citi cannot sell its Polaris stake to IT rivals

December 18th, 2008 - 12:48 pm ICT by IANS  

Chennai, Dec 18 (IANS) Amid rumours that Citigroup wants to sell a part of its 43 percent stake in Polaris Software, the other prime shareholder has pointed out that it cannot sell to companies that the IT firm looks at as its rivals.Under an agreement between Polaris’ two prime shareholders - promoter and chairman Arun Jain and Orbitech Ltd, a Citigroup outfit - neither partner can offload its stake to any firm that is a competitor to the other.

Under the deal, every year, Jain (controlling around 30 percent along with associates in Polaris) will send Orbitech a list of 20 entities that he considers as competitors. The list could change each year based on the current market situation.

Additionally, Orbitech cannot sell seven percent or more - whether in one transaction or through a series of transactions - to a single foreign institutional investor (FII) or mutual fund in any 12-month period.

The partnership can come to an end only through mutual consent or through an open market sale by Orbitech.

The two shareholders have the first right of refusal if either decides to sell five percent or more equity share in a single block, or through a series of transactions during 12 months to a single purchaser other than by way of a market sale.

As long as Jain holds not less than five percent stake in Polaris, he can nominate two non-retiring directors to the board, nominate the chief executive out of the three candidates proposed by Orbitech, and will have to be consulted by Orbitech before the company or substantial portion of its assets are sold.

Subject to certain exceptions, Orbitech has to give its consent to special resolutions moved by Polaris to acquire any other company. It also has to vote in support of Jain on special rights reserved by him.

Conversely, Jain too has to support Orbitech’s special rights as long as the latter controls 15 percent of Polaris’ voting rights.

According to the agreement, Orbitech’s voting rights are capped at 29.9 percent.

The pact stipulates that disputes are to be settled by way of arbitration in Singapore. The arbitration award will be final, and neither party has the right of appeal in court.

Earlier reacting to IANS on market rumours of stake sale by Citi, Jain had said: “As per our agreement, Citi cannot take decisions to dilute its investment without prior approval from Polaris management. We confirm that there has been no dialogue on this subject between Citi and Polaris.”

A Citigroup spokesperson told IANS that Citi would not sell its holdings in Polaris at the moment.

With the Polaris scrip being quoted at around Rs.43, a market sale will not fetch any substantial amount.

The Rs.11.17-billion Polaris, which is showing 10 percent quarter-on-quarter growth in profit, is expected to earn revenues of around Rs.14 billion this year.

The company is estimated to have cash reserves of Rs.6.4 billion, apart from owning substantial real estate.

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