SEC rules Melstacorp to make LMF offer at Rs. 105 per share

The Securities and Exchange Commission (SEC) has ruled that Melstacorp Ltd. must make a mandatory offer on Lanka Milk Foods (LMF) to all at Rs. 105 per share.

This directive came following Melstacorp seeking same from the SEC. Last week LMF share price closed at Rs. 97.10, up by 80 cents from the previous week. On Friday it rose by Rs. 1.10 over Thursday. Business leader Harry Jayawardena-controlled companies own slightly over a 50% stake in LMF.

As per the SEC ruling, Melstacorp should extend a Mandatory Offer to all shareholders of LMF (other than parties acting in concert with Melstacorp) as at 13 September 2011 and to all the current shareholders (other than parties acting in concert with Melstacorp) at an offer price of Rs.105.00 per share

If any shareholders belonging to the above mentioned category have disposed any of LMF shares during the period 13 September 2011 to 15 February 2012 at prices below that of Rs.105 per share, Melstacorp must pay the balance to such shareholders, irrespective of the parties the shares have been sold to

The SEC further stated that in the event Melstacorp is unable to implement the above two specified conditions, it should divest forthwith such quantity of shares of LMF in order to avoid liability.

The Directors of Melstacorp in consultation with the SEC are in the process of assessing the determination, and accordingly, a further announcement will be made of the outcome of same.

The SEC determination follows late last month Melstacorp informing that companies controlled by business tycoon Harry Jayawardena by an oversight they had failed to make a mandatory offer on LMF way back in September 2011.

Melstacorp Ltd. said that as at 12 September it (0.79%) together with its parent Distilleries (33.57%) and Milford Exports (1.9%) acting in concert was holding 14.5 million shares or a 36.27% stake in LMF.

On 13 September a further 5% stake or two million shares of LMF had been bought at Rs. 105 each by the connected parties. This purchase increased the connected parties’ stake to 41.27%.

“However due to an oversight, the Offeror failed to make a Mandatory Offer in September 2011 to purchase the remaining 23.49 million shares, constituting 58.73% of the issued shares of Lanka Milk Foods at the time it triggered the Code,” Melstacorp Ltd.’s Secretaries P.W. Corporate Secretaries said in a filing to CSE last week.

The disclosure came after Melstacorp on 15 February purchased 3.54 million shares or 8.85% stake in LMF. As exclusively reported by the Daily FT on 16 February, the bulk of the purchase was at Rs. 99 per share.

PW Corporate Secretaries in their filing said that when Melstacorp sought to determine the highest paid price paid during the 12 months preceding 15 February 2012, it had transpired that Melstacorp had incurred a similar obligation on 13 September 2011, i.e. five months earlier.

The Secretaries had notified this oversight to the SEC on Thursday for a determination as to the shareholders to whom the offer should be made and the offer price at which the offer should be made.

The Secretaries also stated that L.U.D. Fernando, a Director to the connected parties, had on 13 September purchased 20 shares of LMF from the Odd Lots at a price of Rs. 119 per share. However, Fernando is currently not a connected party as he ceased to be a Director from 8 December 2011.

Prices at which shares transacted as Odd Lots are not considered in computing the highest and lowest price in determining the mandatory offer, hence Melstacorp has sought a due determination from the SEC on the offer price as well.

As per accounts ended on December 2011, Harry J-linked Milford Exports was the biggest shareholder with a 33.57% stake, whilst Melstacorp prior to recent purchase had a 5.79% stake whilst its parent Distilleries had a 1.9% stake. These combined holdings give Harry J an estimated slightly above 50% control in LMF. The other major shareholder is Mills Enterprises Ltd., which owns 15.3%.