Siemens Limited: The House of Business Restructuring

 

On August 14, 2013, Siemens Limited tabled a proposal for the sale of its Postal and Parcel Logistics Technologies and Airport Logistics Technologies business, collectively known as Logistics and Airport Solutions (“LAS”) Business to a 100% subsidiary of its parent, Siemens AG, and sought shareholder approval for the same through a postal ballot to be held on September 13, 2013.

The transaction is the fourth major business restructuring scheme being undertaken by the Company involving its promoter group Siemens AG, post the parent entity’s voluntary open offer to acquire an additional 20.00% stake in the Company in June 2011.

The list of business restructurings in the last two years undertaken by Siemens Limited involving the subsidiaries/associates of its parent entity are given in the table below:

Date Transaction Shares Issued to Siemens AG Value (In Crores) Dilution (In %)
Feb-12 Amalgamation of Siemens VAI Metals Technologies Private Ltd. and Morgan Construction Company India Private Ltd. with Siemens Limited 11,738,108 806.11 3.33%
Apr-12 Amalgamation of Siemens Power Engineering Private Ltd. with Siemens Limited 3,461,538 237.72 0.97%
Dec-12 Merger of Winergy Drive Systems India Private Limited with Siemens Limited 625,139 41.86 0.18%
Sep-13 Sale of LAS Business of Siemens Limited to a Subsidiary of Siemens AG Cash Transaction 122.75 -

In addition to these transactions, the Company has also merged many of its wholly owned subsidiaries with itself in the past few years. Although the Company has a stated focus of consolidating its group companies in India, the multitude of restructuring schemes undertaken by the Company does cast a shadow on the corporate governance framework of the Company. It also raises serious questions on the transparency and disclosure practices of the Company and its Board oversight.

Siemens AG, the parent entity of Siemens Limited, has been in the eye of the storm globally, after having faced accusations of bribery and other corporate malfeasance of senior executives in roughly 20 countries. The Securities and Exchange Commission and Justice Department in US are investigating Siemens for allegedly violating the Foreign Corrupt Practices Act (FCPA). Given the backdrop, investors of the Indian listed entity would expect the company to improve its transparency and disclosure practices in all its corporate actions.

However the Company has not been very forthcoming with its disclosures for most of its restructuring schemes. Even in the proposed sale of the LAS business, the Company has not made sufficient disclosures for an independent assessment of the transaction. The Company has taken refuge in legalese and not adhered to good corporate governance practices of full disclosure and transparency.

Given the increasing number of corporate malpractices involving related party amalgamation schemes, SEBI had laid down new guidelines in February 2013 for listed Indian companies that require them to submit their amalgamation schemes to the stock exchanges and disclose all scheme related documents on their website in electronic format. However, these regulations were not extended to other corporate actions which involved promoters or promoter group entities.

InGovern has been advocating changes in the regulations, specifically on resolutions which involve related party transactions such as those given below:

  • SEBI should make it mandatory for promoters of the Company to abstain from voting on related party transaction resolutions which impacts minority shareholders
  • SEBI should make it mandatory for companies to disclose all documents in public domain in electronic format for all related party transactions in which the promoter or promoter group is a beneficiary

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