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Govt moves to exit totally from CMC — To sell residual stake to Tatas

P. Manoj

NEW DELHI, Oct. 8

THE Union Government has initiated the process of exiting completely from CMC Ltd by selling its residual 26 per cent stake in the company to the strategic partner, Tata Sons Ltd.

The deal signals the Government's resolve to press ahead with the sell-off process in companies other than the two oil majors, HPCL and BPCL. The standoff between two groups within the Cabinet on the sell-off of these two oil companies had severely dented the image of the Government.

The management control of CMC was handed over to Tata Sons on October 16, 2001 through sale of 51 per cent equity for a consideration worth Rs 152 crore at Rs 198 per share.

With one year of the strategic sale nearing completion, the Government has decided to exercise its put option on the residual 26 per cent stake in CMC any time after October 16, Disinvestment Ministry sources said.

The shareholders' agreement signed with Tata Sons had provided a put option right to the Union Government for selling its residual 26 per cent stake in CMC to the existing strategic partner after one year of the strategic sale.

"We have started compiling data on the share price of CMC Ltd in order to arrive at the price for selling the 26 per cent stake," the sources said.

"The Disinvestment Ministry will approach the Cabinet Committee on Disinvestment (CCD) with a proposal to sell the residual 26 per cent stake in CMC Ltd to Tata Sons Ltd after firming up the price," they added.

While the Tatas had paid Rs 198 per share to the Government for the 51 per cent stake, it had to fork out Rs 280 per share during the open offer that ensued.

As per the practice followed by the Government for all disinvestment deals, the residual stake is sold at either the strategic sale price or the fair market value, whichever is higher, determined on the basis of net asset value, discounted cash flow and the price/earning multiple valuation methodologies.

The shares of CMC closed at Rs 519.70 per share on the Bombay Stock Exchange (BSE) and at Rs 520 per share on the National Stock Exchange (NSE) on Tuesday.

The Disinvestment Ministry has taken the stand that it would exercise its put option right in companies that are being disinvested through the strategic route within the time-frame mentioned in the shareholders' agreement to take advantage of the buoyancy in the share prices and maximise the proceeds.

The scrip of CMC had gathered a lot of sheen after the company became a subsidiary of the Tata group last year.

CMC would only be the second company from which the Government was withdrawing completely after Modern Food Industries (India) Ltd, now a subsidiary of Hindustan Lever Ltd (HLL).

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