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In the question below, a passage is given followed by three courses of actions numbered I, II and III. On the basis of the information given, you have to assume everything in the statement to be true, and then decide which of the following suggested courses of actions logically follow(s) for pursuing. Passage: The board of Vedanta Ltd Limited on Monday approved a proposal for delisting of the company and will seek shareholders approval for the process through e-Voting, the company informed the exchanges. The company has proposed to buy 48.9% shares at Rs 87.5 apiece whereas the book value of the company is around Rs. 141 per share. Retail investors hold 7% of the total shares whereas Institutional Investors hold 41.9% of the total shares. Minimum 90% of shareholders should approve the de-listing for it to happen. The scrip closed today at Rs.110, down 4% from the previous close. Courses of action: I. Vedanta must cajole Institutional shareholders to approve the de-listing. II. Institutional Investors must seek a better deal from the company and vote out this proposal as it is below both the market price and book value. III. Retail investors must come together and complain to the exchanges regarding the company’s attempt to force them out of their shares.

In the question below, a passage is given followed by three courses of actions numbered I, II and III. On the basis of the information given, you have to assume everything in the statement to be true, and then decide which of the following suggested courses of actions logically follow(s) for pursuing. Passage: The board of Vedanta Ltd Limited on Monday approved a proposal for delisting of the company and will seek shareholders approval for the process through e-Voting, the company informed the exchanges. The company has proposed to buy 48.9% shares at Rs 87.5 apiece whereas the book value of the company is around Rs. 141 per share. Retail investors hold 7% of the total shares whereas Institutional Investors hold 41.9% of the total shares. Minimum 90% of shareholders should approve the de-listing for it to happen. The scrip closed today at Rs.110, down 4% from the previous close. Courses of action: I. Vedanta must cajole Institutional shareholders to approve the de-listing. II. Institutional Investors must seek a better deal from the company and vote out this proposal as it is below both the market price and book value. III. Retail investors must come together and complain to the exchanges regarding the company’s attempt to force them out of their shares. Correct Answer Only II follows.

A course of action is something that needs to be done considering the present scenario in mind. From the statement, two things are evident

1. The de-listing price offered by Vedanta Ltd. Is both below book value and market price hence we can say it is an attempt of the company to buy back shares at a cheaper price.

2. Institutional Investors have a big say in the outcome of the process, but retail investors have little voice since they hold only 7% of the company shares.

 Thus, the course of action must be in line with these ideas.

Course of action I assumes that Vedanta Ltd will be able to “cajole” Institutional Investors to sell the shares at below fair value. This might not be a prudent act as Institutional Investors are generally smart enough to rebuff such actions. The company must instead look to arrive at a transparent price through reverse book-building. So, Course of action I does not follow.

Course of action II follows because it is evident from point (1) above that the de-listing is an attempt of the company to buy back shares at a cheaper price. Hence, Institutional Investors must seek a better deal from the company and vote out this proposal. So, Course of action II follows.

Course of action III does not follow here because the company is not trying to force anyone out of their shares here. It is seeking shareholders’ approval through e-Voting. And even if the delisting process is approved through voting, retail investors can still refuse to sell their shares. It will only become relatively illiquid. So, Course of action III does not follow.

Hence, only II follows.

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