Members entitled to remain in company after delisting

Nestle Lanka PLC which has sought shareholder and regulatory permission to voluntarily delist its shares from the Colombo Stock Exchange (CSE) has summoned at Extraordinary General Meeting on June 30 where the board of directors will seek the approval of 75 percent of shareholders present for the delisting resolution.

“This may mean there can be a shareholder effort to jack up the exit offer price that has been made,” an analyst said. “This had happened on two previous instances.”

The circular published in the CSE website sets a price of Rs. 1,500 per share to be paid to shareholders willing to exit. Nestle has said that the exit price reflects a 58% premium on the daily volume weighted average market price over the 12-month period ended March 31, 2023, a 36% premium over the highest traded price over the last 12 months ended Mar. 31, 2023, and a 10% premium to the highest of the fair price range determined by the independent valuer.

Saying that the exit offer “represents a substantial premium over the fair price for the shares,” the directors have recommended the offer to its shareholders adding that those shareholders who wish to retain heir shareholding after the delisting would be entitled to do so.

The circular which does not set out the highest ever price commanded by the Nestle share since listing on the CSE says the exit price is 650% over the net asset value per share set out in the last interim quarterly financial statement of Dec. 2022.

Nestle Lanka PLC which was incorporated in Sri Lanka in 1981 has been listed on the CSE from 1983. The company’s controlling shareholder Nestle S.A. which has an effective shareholding of 91.95% of Nestle Lanka, is the world’s largest food and beverage company operating over 340 factories in 33 countries with its products sold in 188 countries.

Nestle which has been present in Sri Lanka for 115 years, prior to its incorporation as Nestle Lanka had a presence here as Ceylon Nutritional Foods Ltd.

The circular to shareholders says that Nestle has been actively seeking ways to have a more efficient operation here but the company envisaged challenges “in raising significant capital from the shareholders through capital injection to fuel growth and future success of the company as it would result in further dilution of the public shareholding and possible violation of minimum public shareholding requirements as defined in the listing rules.”

Analysts noted that there were two previous instances where dominant shareholders of companies seeking delisting went up substantially on the exit offer price first made to shareholders. This was in the case of AIA Insurance and Property Development PLC, the Bank of Ceylon subsidiary owning the bank’s headquarters building.