A day before the scheduled declaration of its second quarter results, Wipro, on Thursday, announced that it was hiving off its non-IT businesses into a separate unlisted entity, to be named Wipro Enterprises Ltd.
The demerger of Wipro Consumer Care and Lighting (including the furniture business), Wipro Infrastructure Engineering (hydraulics and water businesses), and Medical Diagnostic Product and Services business (through its strategic joint venture) was approved by the Wipro board on Thursday.
To focus on IT services
IT services business generated 86 per cent of the company’s overall revenues, and 94 per cent of the operating profit in 2011-12.
The company claimed that the demerger would enable the two entities to focus on their respective ‘growth strategies’. It said the changes would have no impact on the composition of the Wipro board. There would also be no change in the leadership of the constituent businesses of Wipro Enterprises. The two companies would jointly hold the Wipro brand.
Wipro Chairman Azim Premji will continue as Executive Chairman of Wipro, and will assume the position of non-Executive Chairman of Wipro Enterprises.
“The businesses of Wipro Enterprises are diverse, and this demerger gives them an opportunity to pursue their independent growth plans,” said Suresh Senapaty, CFO and Executive Director, Wipro.
Resident Indian shareholders of Wipro may choose from three sets of options. They may choose to receive one share with a face value of Rs.10 in Wipro Enterprises for every five equity shares with a face value of Rs.2 each in Wipro; or receive one 7 per cent redeemable preference share in Wipro Enterprises with a face value of Rs.50 for every five equity shares of Wipro that they hold; or they may choose to exchange the equity shares of Wipro Enterprises and receive as consideration equity shares of Wipro held by the promoter. The exchange ratio will be one equity share in Wipro for every 1.65 equity shares in Wipro Enterprises.
Each redeemable preference share shall have a maturity of 12 months, and shall be redeemed at a value of Rs.235.20.
Non-resident shareholders
Non-resident shareholders (excluding ADR holders), and ADR holders will be entitled to receive equity shares of Wipro Enterprises in the aforesaid ratio.
The non-resident shareholders (excluding ADR holders) shall further have the option to exchange Wipro Enterprises equity shares that they are entitled to and receive equity shares of Wipro held by the promoter in the aforesaid ratio.
According to the restructuring scheme now proposed, Wipro Enterprises equity shares, which the ADR holders would otherwise be entitled to receive, shall be compulsorily exchanged for equity shares of Wipro held by the promoter in the aforesaid ratios.
Wipro said the demerger was likely to help Wipro increasing the public float for the purpose of meeting the minimum public shareholding requirement under Clause 40A of its listing agreement subject to SEBI approval.
Participating in teleconference, Mr. Senapaty said the demerger, which would be effective from April 1, 2012, would be completed within the current financial year.
Asked whether the demerger would enable Wipro to maintain higher margins, he said, “The competitiveness of the IT business will also improve.”
N. Vaghul, who was a member of the committee that designed the demerger plan, said the timing of the decision was based on the assessment that the IT business had gathered ‘critical mass’. He also ruled out any plans to list the non-IT businesses.
