MUMBAI - An Indian media mogul has become the story. Minority shareholders are angry at the valuation assigned to a piece of Vineet Jain’s conglomerate as part of a buyout offer. Stakes in Uber, Airbnb and other start-ups may not be fully reflected in the price. It is a twist on the holding company discounts faced by the likes of SoftBank.

Bennett, Coleman publishes the Times of India and Economic Times, and operates television channels. It also runs Times Internet, billed as India’s largest digital products company, with interests in online education firm Coursera, real estate listings site magicbricks.com, and Gaana, a Tencent-backed music outfit. A clever business model has helped build a portfolio of hundreds of companies partly by swapping advertising space for equity: Its Brand Capital division says on its website it has $4 billion of invested value.

The complication for Jain is that 24% of Bennett, Coleman is owned by Bharat Nidhi, which has offered minority shareholders an exit path, required after its regional stock exchange ceased to be recognised. The deal values the company at 32.7 billion rupees ($476 million), of which almost one-fifth is attributable to its stake in the nearly $100 billion HDFC Bank.

In a June letter to the securities regulator seen by Reuters, shareholders complained that the offer is priced using book value, or the original cost of the assets adjusted for depreciation, impairments and other items. Instead, they say the stakes and other holdings should be considered on a fair-value basis, or what they fetch, or might do, on the open market. The minority investors also want the fair value, and the methodology used, to be disclosed.

Typically, it is the tycoons arguing that shareholders don’t fully appreciate how much their investments are worth. SoftBank boss Masayoshi Son, for one, said in May his sprawling tech and telecom group is misunderstood and should be worth twice its actual market capitalisation. South Africa’s Naspers is another that trades at a discount to its various holdings, including China’s Tencent. There can be good reasons for this to occur, including tax effects, but it is no excuse for Bharat Nidhi to bury the tech lead.

CONTEXT NEWS

- Minority shareholders in a holding company backed by Indian media mogul Vineet Jain have complained to the securities regulator over the terms of a proposed share buyback.

- In a June 27 letter calling for the Securities and Exchange Board of India to investigate, investors in Bharat Nidhi, which owns 24.4% of newspaper publisher Bennett, Coleman & Co said the offer to buy back shares at 11,229 rupees each is a “concerted effort to defraud” them. The deal values the company at 32.7 billion rupees ($476 million). Jain is the managing director of Bennett, Coleman.

- They argue in the letter, seen by Reuters, that the valuation of the holding company should be based on fair value, and that the fair value of Bennett, Coleman should be disclosed along with any discount applied to reach a final valuation of the holding company. The company is using book value, which is lower, to price the share purchase, the minority shareholders say.

- “We believe the concerns raised are unfounded,” a Bharat Nidhi official told Reuters.

- The buyback offer is part of a regulatory requirement for companies listed on regional stock exchanges, which are no longer recognised.

(Editing by Jeffrey Goldfarb and Katrina Hamlin)

© Reuters News 2019