Paving the way for competing open offers for Mangalore Chemicals and Fertilizers ‘ shareholders, fair trade watchdog CCI has cleared Zuari ‘s proposal to buy additional 26 per cent stake in the Vijay Mallya group firm. Deepak Fertilizers , which is also in the fray to snap up stake in Mangalore Chemicals and Fertilizers Ltd (MCFL), last month received the green signal from the Competition Commission of India for its Rs 190-crore open offer.
Zuari entities’ Rs 211-crore offer for 26 per cent stake in MCFL is supported by the existing promoters and would be “a competing open offer” to Deepak Fertilizers’ offer. Giving its green signal, the Commission said the “proposed combination is not likely to have appreciable adverse effect on competition in India”.
Zuari Fertilisers and Chemicals is currently setting up a Single Super Phosphate plant in Maharashtra and does not yet manufacture or trade in any fertiliser products. The entity is a wholly-owned subsidiary of Zuari Agro Chemicals, which is into manufacture and trading of fertilisers.
The public announcement for the open offer was announced on May 12.
Citing information provided by the acquirers, the Commission said that the “parties have overlaps in the fertilisers, pesticides and chemicals and organic products”. “However, it is observed that the overlap in pesticides, chemicals and organic products is minimal,” CCI said in its order dated September 4 and made public today.
Capital market regulator Sebi, which had given its go-ahead to the proposed stake purchase by Deepak Fertilizers and Zuari Group in MCFL, had also ruled that their respective open offers can commence only after CCI nod.
Either of the two open offers can start only within 12 working days from receiving CCI approval for the second deal. According to the Commission, it is observed that apart from a few fertilisers which Zuari entities manufacture, they are largely involved in trading of fertilisers.
“Further, the composite market shares of the parties in primary nutrients, as well as in overlapping straight and complex fertilisers such as urea (straight nitrogenous fertiliser), MOP (straight potassic fertiliser), SSP (straight phosphatic fertiliser) and NPK (complex fertiliser), except for in Calcium Nitrate, are not substantial.
“Also the incremental change in the market share is minimal in most cases. With respect to most of the remaining overlapping fertiliser products, including Calcium Nitrate, the parties’ presence is only through trading,” it noted.
In May, UB Group joined hands with the Zuari to ward off a hostile takeover bid by Deepak Fertilizers for MCFL. The watchdog also said most of these overlapping products also fall under the OGL, and therefore, any person with requisite approvals can import them into India.
Noting that there are significant competitors in the market, the Commission mentioned names such as Indian Farmers Fertiliser Cooperative Ltd, National Fertilisers Ltd, Fertilizers & Chemicals Travancore Ltd, Coromandel International Ltd, DCM Shriram Consolidated Ltd, Nagarjuna Fertilizers & Chemicals Ltd, Deepak Fertilizers and Petrochemicals Corporation Ltd.
The notice seeking approval for the proposed deal was submitted to the Commission on June 11. In June, Zuari Fertilisers and Chemicals and Zuari Agro Chemicals had entered into a pact with UB group comprising of United Breweries (Holdings) Ltd, Kingfisher Finvest India Ltd and McDowell Holdings Ltd.
The battle for MCFL between Deepak Fertilizers and Zuari Group was triggered in April 2013 when the latter bought about 10 per cent stake in Vijay Mallya firm through open market. Later, Deepak Fertilizers acquired 24.46 per cent stake in MCFL in July 2013. Then, Zuari group increased its stake to 16.43 per cent in the same month.
Earlier this year, Deepak Fertilizers further hiked its shareholding in MCFL to 25.31 per cent — thereby triggering the mandatory open offer clause under Sebi norms. Since Saroj Poddar-led Zuari group along with UB Group is looking to purchase 26 per cent in MCFL, they have to make an open offer under Sebi rules.