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Dawood Group restrained from Engro hostile takeover

RECORDER REPORT

KARACHI: Engro Chemicals Pakistan on Friday moved the High Court of Sindh to prevent Dawood Group from acquiring majority stakes or attempting a hostile takeover of the company.

According to a notice issued by the Karachi Stock Exchange, the company filed a suit on Friday against Muhammad Hussain Dawood, Dawood Hercules Chemicals Ltd, Dawood Cotton Mills, Central Insurance Co, and Dawood Foundation.

The suit challenged the substantial acquisition of Engro shares by the abovenamed on the basis that they have been acquired in violation of the provisions of law. Pending final decision, an application for temporary injunction was also filed.

The court has passed the following order:

"Urgent application granted and notice for March 8, 2000. Meanwhile defendants Nos 1 to 5 are restrained from exercising any right or receiving any benefit whatsoever accruing from the shares already acquired by them and voting on the basis of the same at the share holders meeting. The said defendants are also restrained from purchasing any shares of the plaintiffs in violation of law."

Sharifuddin Prizada, Aziz Munshi and representative of Orr Digname and Co appeared for the company.

According to an analyst, the annual general meeting of the Engro Chemical is scheduled to be held on April 5, 2000 with the main agenda of electing of 10 directors for a three-year term.

He said that as per the balance sheet of the listed companies of the Dawood Group, they had accumulated about 25 to 30 percent shares in Engro. Through these buying, they can easily place three directors on the board, while through proxies the group can fight for a fourth seat.

The acquisitions by employees of the company total around 25 percent and takeover by the Dawood Group would be the first takeover in the corporate sector.

The Dawood Group's investment in Engro Chemicals commenced when the price of the scrip was over Rs 70 per share. The Engro's share outperformed the KSE index in the recent past and, in a small market, limited floated shares could help any group to acquire shares or create takeover-like situation in any scrip.

Last year, Adamjee Insurance suffered a setback when a local brokerage and bank acquired two seats in the company, breaking decades-old of hold of Adamjee group in the insurance company.

"Huge offloading of shares by the employees and some of the local financial institutions provided the opportunity to the group to build up its position," a leading analyst said.