Maximise shareholders value -- Kamath

Maximise shareholders value -- Kamath
PRESS TRUST OF INDIA

NEW DELHI, FEB 19: Companies should focus on enhancing shareholder value in order to avoid takeover threat from the corporate raiders, ICICI managing director K V Kamath said here today.

"Corporate systems that are not based on maximising shareholders value run the risk of being starved of capital and possible takeover target," he said at a seminar on Business Strategies for Managing the Future, organised by PHD Chamber of Commerce and Industry.

He said shareholder value is the performance metric that uses the best and most complete information. In this connection, Kamath cited the cases of Infosys Technologies and Wipro which have focussed on shareholder value and attracted lot of investors interests in the stock market.

He said the market capitalisation of these two companies have been rising continuously and have surpassed large number of blue chip companies.

"Creating shareholders value calls for enhanced corporate governance," he added.

In order to enhance shareholders value, Kamath suggested that companies can use merger and acquisition to consolidate and extract locked values in the system.

Kamath said through mergers and acquisitions companies can `unlock' shareholder value. "If a division is valued in isolation from its parent, then significant value may emerge and through this companies can restructure to `unlock' this value," he said.

Kamath suggested three ways- issuance of tracking stocks, equity carve-outs and spin-off in which companies can unlock this value. Issuance of tracking stocks calls for creation of separate classes of equity of parent representing performance of targeted business.

Equity carve-outs involves restructuring through an initial public offer of a subsidiary where the parent usually retains ownership. Spin-off is simply transfer of the entire ownership of a subsidiary.

Kamath said through this parent company is able to generate acquisition currency and provides flexibility in raising equity capital. It also facilitates the attraction of a new class of investors and potential of improved operational performance.