December 11, 2024 (MLN): TRG Pakistan Limited through an Exchange Notice today has informed that it has received certified ad-interim orders from the Courts restraining the Company from conducting its upcoming Board of Directors Elections and to maintain status quo, implying that the current Board of Directors, controlled by the Management, shall function till further orders.
The term of the current Board of Directors was expiring before mid-January 2025.
It is more than likely that the two suing shareholders have questioned the voting rights status of the TRG block of shares that the Company itself holds through Greentree Holdings Limited.
To recall, Greentree Holdings is a wholly owned subsidiary of TRG International Limited who in turn is an Associate of TRG Pakistan in spite of the fact that TRG Pakistan holds 68.8% of the TRG International shares and 100% of the effective beneficial interest over TRG International’s residual net assets.
Greentree Holdings holds approximately 29.34% shares of TRG Pakistan, purchased with TRG Pakistan’s liquid funds, and the voting power over this block of shares nominally lies with TRG International’s Management, unless further relegated to the wholly owned subsidiary.
No matter how one views the configuration of this Rubik’s cube, such indirect control of the Management over the composition of its Board of Directors is a universally recognized red flag.
Let’s proceed ahead anyway. Readers would recall the famous Prisoners’ Dilemma, taught in game theory textbooks.
Knowing that scheduling Board of Directors’ Elections with the red flag fluttering, any shareholder, conscious of their rights, would seek to resolve the matter in Courts post such schedule. Therefore, scheduling the Board of Directors Elections would imply that the Management considers the red flag as no flag at all; that being as callous an act as any.
Hence, utilizing the proverbial second-level thinking, the Management wants someone else to point out the red flag, albeit defectively, before scheduling the Board of Directors Elections. This absolves the Management of not calling the spade a spade, itself, and effecting smoother resolution.
So far so good but once raised at the Courts, how would this issue be resolved in a way favourable to the Management. Two possibilities, simply!
The first being that the Courts would bar voting rights of Greentree Holdings’ block of TRG shares. However, as all those who have been to the Courts could testify, only after a considerable period of time. Time, as we pointed out in another article, to devise strategies including an outright buyback option, under the current Board of Directors. In other words, the Management might lose and need more shareholders’ resources to control the Company.
The second possibility is that the Courts might actually get convinced that the Greentree Holdings shall exercise independence over its voting rights, or alternatively that TRG International Limited whose wholly owned subsidiary Greentree Holdings is, shall exercise independence over the voting rights of TRG Pakistan shares held in its subsidiary.
Any of these statements shall have to be substantiated by a bona fide statement from TRG Pakistan Management (or its Board, majorly controlled by the Management) that it has granted TRG International such independence with respect to its own property, in the best interest of the property holders i.e., TRG Pakistan shareholders.
Those who say that it won’t fly have to read TRG Pakistan Notice dated 20th December 2021 whereby the Management stated that they gave TRG International the power to “utilize all or part of these Liquid Assets to purchase shares of TRGP from the stock market from time to time, in order to provide value, benefit, and liquidity to the shareholders of TRGP”. And that “Such transactions will be conducted independently by the SPV in accordance with applicable laws.” At least that flew for the time being!
The two shareholders acting preemptively are the famous white knights in M&A parlance. What they are doing is to help the Management clear the reeds before sowing.
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Posted on: 2024-12-11T14:57:42+05:00