US glass giant Guardian Industries has offered to sell its 50% holding in Gujarat Guardian to Modi Rubber for INR 5.68 billion in a transaction worth INR 72.50 per share. Modi Rubber has a 22.4% stake…
US glass giant Guardian Industries has offered to sell its 50% holding in Gujarat Guardian to Modi Rubber for INR 5.68 billion in a transaction worth INR 72.50 per share. Modi Rubber has a 22.4% stake in the joint venture. Guardian“s offer to sell its stake in the JV was made in the context of the continuing litigation over its proposed subsidiary in the Delhi high court. The court heard the case on 1 December 2006. Modi Rubber might respond to the Guardian offer on 4 December 2006 when the high court case resumes. Guardian has said the transaction should be completed by 15 January giving Modi Rubber 45 days to pay. Modi Rubber had sought an injunction against the decision by the Foreign Investment Promotion Board allowing Guardian to set up a 100% subsidiary. The high court had suggested that the partners should attempt to settle the dispute amongst themselves. While the buyout is likely to bring the ongoing Guardian-Modi Rubber dispute to an end, it is unclear if the INR 5.68 billion payout can be completed by 15 January 2007. It is also not clear how Modi intends to finance the transaction. The Modi group company has been in difficulty for sometime and financial institutions hold a 44% stake. Guardian and Modi have been in dispute ever since Guardian applied for government permission to set up a 100% subsidiary. Modi Rubber refused to provide its consent for the proposed Guardian subsidiary, but the FIPB has cleared the US company“s proposal. Earlier, financial institutions had valued Gujarat Guardian at INR 55 per share. Two Gujarat government-owned companies, Gujarat Alkalies & Chemicals and Gujarat Mineral Development Corporation each hold 4.73% stakes in Gujarat Guardian. If Guardian leaves the joint venture, then the litigation over its proposed 100% subsidiary would become meaningless. The US giant plans to invest nearly USD 200 million in the fully-owned subsidiary and employ 500 people. Apart from the litigation in the Delhi high court, yet another case filed by Modi Rubber against the new venture is pending in the Ahmedabad high court. Guardian has informed that the government the subsidiary would be outside Gujarat. This idea is not acceptable to GACL and GMDC since the Gujarat government does not want the investment to go out of the state.