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A SICK IT FIRM ACQUIRES ANOTHER SICK COMPANY TO CRUISE TO BOMBAY STOCK

EXCHANGE!
By Naresh Minocha, Our Consulting Editor

MUMBAI, DEC 2 : A loss-incurring information technology firm is set to cruise to the Bombay Stock Exchange (BSE)
by acquiring a listed, loss-incurring shell company. The former company would thus smartly bypass the
stringent initial public offer (IPO) norms laid down by stock market regulator.

Chennai-based Savant India Institute of Technology Private Limited (SIIT) has acquired 41.56% stake in
Bangalore-based Standard Cables Limited (SCL) at a price of Rs 1.40 per equity share of face value of Rs 10.
The total price paid for acquiring 1404800 shares is Rs 19.67 lakh.

SIIT is slated to close its public offer to acquire 20% shares from SCL’s retail and institutional investors on 13
December. The offer price is the same as the one at which it negotiated purchase of controlling stake from SCL
promoters. And the paltry negotiated price is justifiable on the ground that there has been no trading of the scrip
on BSE for the last six months. The scrip last changed hands on BSE at a price of Rs3.70 in January 2004.

Assuming full acceptance of the public offer, SIIT would end up acquiring an additional 20% stake at a price of
Rs 9.46 lakh. Thus, the total cost of getting listing on BSE comes to Rs 29.13 lakh. The company would have been
forced to spend much more had it chosen the initial public offer (IPO) route to BSE and had it been eligible to
launch an IPO.

Though SIIT has not indicated whether it would merge itself with SCL, it has given a hint in this direction. It has

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 stated that it would go for corporate restructuring of SCL, including alteration in its main object clause after
completion of the public offer.

SIIT is wholly owned subsidiary of Singapore-based Playware Studio Asia Pte. Ltd and is a part of Savant group
that has a wide regional IT education network across Asia.

According to SIIT, “with a view to further strengthen its base in India and lend credibility to its business model, the
company proposes to pursue further expansion through a listed entity. The management of SIIT is confident that
pursuing their proposed expansion through SCL will not only revive the company but will also go a long way in
establishing a firm foothold for SIIT’s operations in India. The present acquisition is aimed at tapping this
opportunity and the management is confident that it will be beneficial both to SIIT as well as the existing
shareholders of SCL.”

SCL stopped manufacturing cables and closed its factory with effect from 21 October 2002. It has given golden
handshake to all its employees in accordance with labour laws. It has sold off all its assets as well as settled all its
dues with the banks. It has also paid dues of all its suppliers. It has, however, accumulated losses of Rs 3.19 crore
on its books. These losses might well be non-cash losses, arising out of inadequate provision for depreciation over
the years.

SIIT incurred net loss of Rs 61.66 lakh on total income of Rs 45.75 lakh in 2003-04. It had negative networth of Rs
67.04 lakh as on 31 March 2004.

Under the IPO norms for IT companies laid down by Securities and Exchange Board of India, an IT company
proposing to tap the primary market is required to furnish three-year track record of profitability out of its IT
activities.

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