Wipro needs to provide clarity on demerger: Advisory firm

Institutional Investor Advisory Services (IIAS), a company that provides advisory services on corporate governance, says Wipro Ltd, controlled by Azim Premji, needs to disclose more to investors about its recent demerger announcement. In particular, it said, there was a need to have more information about Wipro Enterprises Limited.

On November 1, Wipro's board agreed to carve out the company's non-IT businesses into a separate entity. Wipro Consumer Care & Lighting, Wipro Infrastructure Engineering and Medical Diagnostic Product & Services are now part of Wipro Enterprises.

"Wipro's management, and this includes Premji, have to throw colour on Wipro Enterprises. Toilet soaps and office furniture are not sold through the same channel. And nor do hydraulics and pneumatics sit well with lighting. Is the management thinking about divesting the lighting business and investing the proceeds in hydraulics and pneumatics? Or hiving off toilet soaps to invest in lighting?" IIAS asks in a note.

Further, it asks: "Does the management have a focussed strategy in place or will the 'pursuit of independent growth plans' suffice? Are they thinking of further splitting Wipro Enterprises and then list(ing) the various underlying businesses separately anytime soon? Is there any time-line for listing? If so, is this three years or seven or is it uncertain? Azim Premji may not share the details, but he has to share his vision with investors. In the absence of this, offering Wipro Enterprises shares is a hollow choice."

Wipro investors have been given three options to choose from post the demerger. They can receive one equity share with a face value of Rs 10 in Wipro Enterprises Limited for every five equity shares with a face value of Rs 2 in Wipro Limited.

Second, they can receive one seven per cent redeemable preference share in Wipro Enterprises Limited, with a face value of Rs 50, for every five equity shares of Wipro Limited.

The last option is to exchange equity shares of Wipro Enterprises Limited in lieu of equity shares in Wipro Limited held by the promoter.

Premji currently owns 78.37 per cent in Wipro Ltd. If the last option is exercised by all minority shareholders, it would help him lower his stake in the company to about 75.67 per cent, almost in line with new norms mandated by the Securities and Exchange Board of India on public holding. The promoter holding in private sector companies needs to be diluted to 75 per cent by June 2013.

"While investors can weigh the deferred cash against Wipro's shares, asking them to do so without any information on what are the management's plans for Wipro Enterprises is unreasonable. Investors have the right to know more and Wipro has an obligation to provide answers. Only then can investors hope to take the right decision," says IIAS.