By Mark Kleinman, City Editor
A group of powerful City investors took steps on Friday to block a £1bn takeover of Essar Energy, an India-based oil refiner which is fast-becoming a test-case for the protection of minority shareholder.
Sky News has learnt that the Association of British Insurers (ABI) has formed a special committee and brought in legal advisers to consider ways of preventing the billionaire founders of Essar Energy from forcibly removing the company from the London Stock Exchange.
The row centres on the 70p-a-share offer for the 22% of the shares not owned by Essar Global, the vehicle of the Ruia brothers, who listed Essar Energy by selling shares less than four years ago priced at six times the price they now want to pay.
The cut-price offer has sparked fury from big City institutions, including Standard Life Investments, which in February described it as "cynical opportunism" and "a calculated attempt to deprive minority shareholders of the substantial future upside in Essar Energy's valuation".
Sources close to the talks said the members of the special committee spoke for 9% of Essar Energy's share capital, or 35% of the freely-floated shares, and that discussions with other independent investors were also ongoing.
Under stock exchange rules, because the Ruias already control a majority of the shares, they can declare their offer unconditional even if no other shareholders accept their bid.
Doing so would enable them to delist the company without a vote, which would either force investors to accept 70p-a-share or to remain shareholders in a more highly-indebted and unlisted company where they possess no influence.
Sky News understands that one option being considered by the minority investors is to force the independent directors of the company, who comprise a majority of the board, to issue new equity that would dilute the majority owners.
That would be fraught with difficulty because issuing new equity would require the authorisation of the board as well as the consent of the Takeover Panel, which can prevent such a moves in 'poison-pill' takeover situations.
The committee has now written to Essar Global to ask it not to declare its offer unconditional unless at least half of the independent shareholders accept the offer
The ABI committee has also written to the Financial Conduct Authority (FCA), to urge it to monitor the situation, as well as to VTB Capital, the bank financing the Ruias' bid, to discourage it from declaring the offer unconditional.
Insiders said that the Ruias' offer was particularly outrageous because it was made just months before new rules are introduced to protect the rights of minority shareholders.
They added that while the right to make an offer for the company was detailed in a relationship agreement drawn up when Essar Energy floated, its terms were not made clear in the shareholder prospectus, which could provide the ABI with another legal avenue to explore.
Skadden Arps Slate Meagher & Flom, a major law firm, is advising the special committee.
Sky News revealed on Thursday that the investment affairs division of the ABI was planning to merge with the Investment Management Association to give fund managers a more powerful voice in situations such as the one surrounding Essar.
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