Pantaloon Retail has a DVR (differential voting rights) outstanding which carries 1/10th of the voting rights enjoyed by the equity shares but also enjoys 5% more dividend rights than the common stock.
As of this writing, the stock sells at 163 and the DVR sells at 98. That’s a discount of 40%.
On 8 February, the company announced its intention to change the terms of the DVRs (called Class B shares). It is now proposed to increase the voting rights from 10% of those enjoyed by the common stock to 75% and to reduce the incremental dividend over the common stock from 5% to 2%. The explanatory statement states that “markets and investors have discounted Class B Share’s value beyond reasonable discount levels…” and “in order to help shareholders of Class B Shares, to achieve proper pricing for such shares and also to enhance the shareholder’s value, it is proposed to alter/modify the rights and interests of Class B Shares, with regard to voting rights and additional dividend entitlement, with a view to realize and unlock the true value of Class B Shares.”
See the actual text of the explanatory statement below:
Pantaloon Retail is traded in the F&O segment.
How should one think about this development?
Will the discount on the DVRs narrow because of this development? Why or why not?
How much money does the company stand to save by reducing the incremental dividend from 5% to 2%? What do you make of that?