Shah Foods Takeover: Open Offer at ₹62.50 Sparks Fairness Debate

Ownership Shake-Up at Shah Foods

Shah Foods Ltd. is on the verge of a significant ownership and control transition following its board's approval of a multi-layered transaction involving a preferential share issue and a share purchase agreement. This move triggers a mandatory open offer for public shareholders, positioning Mr. Ankit Jalan and Mr. Anuj Jalan as the new promoters of the company. The deal, however, has brought attention to the pricing mechanism, creating a point of contention for minority investors.

The Structure of the Deal

The transaction is composed of three primary components. First, the board has authorized a preferential allotment of 2,27,17,500 new equity shares. A substantial portion of this, 1,58,85,037 shares, is allocated to the acquirers, Mr. Ankit Jalan and Mr. Anuj Jalan, along with their Persons Acting in Concert (PACs). This allotment is priced at ₹62.50 per share and serves as consideration for their acquisition of shares in Tandhan Power Technologies Private Limited.

In a separate preferential allotment, 68,32,463 equity shares will be issued to public category investors. However, this tranche is priced significantly higher at ₹110 per share. The third component is a Share Purchase Agreement (SPA), through which the acquirers will buy an additional 2,92,839 existing equity shares directly from the current promoters at a price of ₹60 per share.

Mandatory Open Offer Details

These transactions collectively trigger a mandatory open offer under SEBI's takeover regulations. The acquirers and their PACs are now required to make an offer to the public shareholders of Shah Foods to acquire up to 60,61,900 equity shares. This represents 26.00% of the company's emerging, fully diluted share capital.

The offer price has been set at ₹62.50 per share. Should the offer be fully subscribed, the total cash outflow for the acquirers would amount to ₹37.88 crore. This open offer provides an exit opportunity for public shareholders, though the price has become a central point of discussion.

A Clear Change in Control

Upon successful completion of the preferential allotments and the SPA, the acquirers will hold a commanding 69.39% of Shah Foods' expanded equity share capital. This concentration of ownership firmly establishes them as the new promoters and gives them decisive control over the company's strategic direction. Such a significant shift in management could lead to changes in the company's core business, which is currently wholesale trading in fruits and vegetables.

The Pricing Conundrum

A key concern for existing minority shareholders is the significant disparity in the transaction prices. The open offer price of ₹62.50, while slightly higher than the ₹60 per share paid in the SPA to existing promoters, is nearly 43% lower than the ₹110 per share being paid by public category investors in the preferential allotment. This wide gap raises questions about the fairness of the price offered to the public shareholders and the valuation methodology used for the open offer.

Impact on Capital Structure

The proposed issuance of over 2.27 crore new shares represents a massive expansion of Shah Foods' equity base. Historically, the company has maintained a stable paid-up equity capital of ₹0.6 crore for over a decade. This large infusion of capital will significantly alter its financial structure and dilute the holdings of existing shareholders who do not participate in the new issuances. The process requires formal shareholder approval through an Extraordinary General Meeting (EGM) and subsequent filings with the Registrar of Companies (ROC).

Future Outlook and Strategic Direction

With new promoters at the helm, Shah Foods may undergo a strategic pivot. The transaction's link to Tandhan Power Technologies Private Limited suggests that the new management might steer the company towards new business verticals, potentially diversifying away from its traditional agri-trading operations. Shareholders will be closely watching for announcements regarding the future business plans and how the newly raised capital will be deployed to generate value.

Conclusion

The takeover of Shah Foods by the Jalan-led acquirer group marks a new chapter for the company. While the change in control is clear, the terms of the open offer, particularly its pricing relative to other parts of the transaction, will remain a key focus for investors. The new management's ability to outline a clear strategic path and justify the valuation will be critical in maintaining shareholder confidence going forward.