The Hindu Business Line : GE Shipping board calls off de-merger

, After hours of brainstorming meetings extending close to midnight on Wednesday at Ocean House, the corporate headquarters of GE Shipping at mid-town Mumbai, the Board of Directors of Great Eastern Shipping Co Ltd decided to call off the proposal to de-merge its offshore business into a separate entity — Great Offshore Ltd.

This was essentially an upshot of the lapse of the stipulated time of six months for wrapping up the de-merger process from the date of the Bombay High Court order approving the scheme.

This also brought the curtain down on all speculations of family division and spat between the Sheth brothers. Sources close to the company say that another reason for the proposal to be called off could be an improvement in relations between the brothers.

Some analysts also feel the decision was more a result of the change in business environment triggered by new opportunities and prospects in the offshore segment. While there has been some delay in the de-merger process, towards the end the Sheth brothers veered round to the view that it would be better off if both the businesses of the company — shipping and offshore — existed in one entity. This is particularly so after the offshore market firmed up significantly since the de-merger was first proposed.

In fact, this had prompted the company to step up investments in the offshore business, having quickly acquired two second-hand platform supply vessels (PSVs) and orders for two new-building PSVs and one rig.

The de-merger process got delayed as the company was not able to get approvals from various contracting counter parties. Oil and Natural Gas Commission Ltd proved to be the biggest stumbling block in the process, as it was initially recalcitrant to give its approval to negotiating with a new entity on the ground that its contract was with GE Shipping. Although ONGC, after much delay, did give its conditional approval recently, there was not much time left with GE Shipping to wrap up the de-merger process within the stipulated deadline.

Legal pundits believe that the board must have had few options. The board could have sought an extension of the deadline from the High Court and continued with the extended time, but apparently it was unsure of the tenure of the extended time. Hence, this was dropped. Clearly, the board wanted to play it safe by deciding to abandon the de-merger proposal in totality.

However, the company indicated that it would explore alternative means to create shareholder value. Other options that could be considered later may include a different mould of corporate restructuring that would facilitate both its businesses to function more independently and professionally.

The challenge lies in how the company will get its act together to satisfy the board, which will meet shortly to discuss these options, sources say.

As the BSE opened on Thursday, GE Shipping shares fell by 7 per cent to touch a low of Rs 207, but later recovered to settle at Rs 220.65, a decrease of 1.21 per cent from Wednesday's closing price. Volumes surged to 70,57,566 shares in both the exchanges.