|  Getting
curiouser - 19 Feb, 2006. http://www.suchetadalal.com/articles/display/479/1952.article
Helios & Matheson’s (H&M) $19 million
cash deal to acquire Vmoksha, which had sent its share
price soaring past Rs 225 last year, is getting curiouser.
H&M omitted to tell stock exchanges that the deal
has gone sour after Rajeev Sawhney, Vmoksha’s
founder, raised several serious issues and objections.
Early this year, Pawan Kumar (former chief of DSQ
Software) who was Vmoksha’s other partner sold
his stake to Sawhney and stepped into Ramesh Vangal’s
shoes at Scandent Solutions. Only last
week, H&M informed stock exchanges that it had
initiated arbitration proceedings regarding the Vmoksha
deal. While investors continue to remain clueless
about details, Rajeev Sawhney has contested H&M’s
claims. His letter, copied to regulators
and stock exchanges, indicates that H&M’s
efforts to invoke arbitration began only on February
10, 2006, after the failed deal became public. Investigations
in this case are likely to revolve around a $13.5
million loan taken by Vmoksha on the sole authorisation
of its former chief, Pawan Kumar, from State Bank
of Mauritius. The money was transferred to H&M,
allegedly against allotment of preference shares to
Vmoksha’s promoters. The loan was
allegedly taken without Rajeev Sawhney’s knowledge
or consent, but curiously enough, backed by the personal
guarantees of H&M’s Chairman
and its Managing Director. Sawhney has sent all documents
and objections to various regulators and contends
that there is no case for arbitration since the deal
has lapsed. This raises serious questions about the
nature of the ‘‘all cash’’
Vmoksha deal and the information provided to H&M’s
public shareholders. Stock exchange officials say
that they are awaiting answers from the H&M management.
This case could turn into a test of the
efficacy of the recently tightened Clause 49 of the
Listing Agreement of stock exchanges. Corporate India
will be watching to see how capital market regulator
and the bourses treat serious disclosure lapses and
whether there are any consequences to wrong or incomplete
disclosure.
Market savvy
The brewing
battle between Helios & Matheson (H&M) and Rajeev
Sawhney over Vmoksha has brought to light several interesting
facets of its operation, through a due diligence report
by Pricewaterhouse Coopers (PWC). We learn that H&M
started life in 1991 as a money changing company named
Express Financial Exchange Pvt Ltd. It changed its name
and switched to software development in time to catch
the dotcom boom in 1999, raised public money, got listed
and quickly set up several international subsidiaries.
Yet, PWC says it could obtain only sketchy details about
its contracts and income recognition. The report further
says that 82 per cent of the promoter shareholding (3.6
million shares of G. Annapurna and Padmaja) is pledged
with Bank of India, UTI Bank and State Bank of Mauritius
and five of its top 10 shareholders are brokerage firms;
the public shareholding is 36 per cent. PWC says that
the company had 77 requests for duplicate shares (duplicate
share certificates have been issued to its fifth-largest
shareholder Astral Ventures) and it failed to get a
direct confirmation of ownership by different parties
as registered by the two depositories, NSDL and CDSL.
Check more on H&M Sucheta - Check the H&M
promoters backgrounds especially how in earlier venture-Ficidies
India- they defauled on loans to banks such as SBI
&Grindlays and gave the slip to several suppliers
and employees .Decrees were also passed in courts
against them at that time You should begin an investigation
of H&M's reported financials especially its cash
flows - which give pointers to the real picture of
how the company is managing its numbers .Such a high
level of bank&other borrowings and huge levels
of capitalised intangible assets for a company -which
reports having conistent and good profits/margins-
seems to indicate the numbers are cooked up
This column itself raises a lot of pertinent questions
about the deal itself and the transparency of both
parties
H&M started as a NBFC-Express FInancial exchange
Ltd in1991 and after 8 years changed tracks to IT
in 1999 and came out with an IPO .Even at that time
several artciles incl in FE raised issues about the
quality of iis disclosures and numbers.
http://www.valuenotes.com/dhan/99oct26.asp?ArtCd=3078&Cat=C&Id=693
http://www.expressindia.com/fe/daily/20000108/fns08064.html
The H&M story continued from 1999 till 2005-
they had a good run with the nos prsented by them-but
how far these are correct is anybodys guess Especially
in 2004 and 05 with news of such"cash" deals
which now turn out to be not deals or not "cash"
deals at all Seems they have not learnt form their
past and are repeating their past over &over again
Anyhow this time atleast some investors in the H&M
scrip have benefited if they booked profits when prices
were high |
