Recently, the government has decided to revive the strategic sale form for mobilizing funds from the sale of PSU shares. Strategic sale of a PSU is different from the ordinary disinvestment. This is because in the case of strategic sale, the control and a significant proportion of a PSU’s share goes to a private sector strategic partner. According to the Department of Disinvestment, in the strategic sale of a company, the transaction has two elements:
- Transfer of a block of shares to a Strategic Partner and
- Transfer of management control to the Strategic Partner
What is the amount of shares to be transferred to the strategic partner?
Understandably strategic sale aptly takes place when more than 51% of shares go to the private sector strategic partner. At the same time, it is not necessary that more than 51% of the total equity goes to the Strategic Partner for the transfer of management to take place. Or in other words strategic sale can take place even if the private sector partner gets less than 51% shares.
According to the strategic sale guidelines in India, the Strategic Partner, after the transaction, may hold less percentage of shares than the Government but the control of management would be with him. For example, in a PSU, where the government holding 51%, and out of this, sale of 25% to the strategic partner while the government holding 26% share also is a case of strategic sale. Here, the remaining shares (49%) will be dispersed among the public.
But the necessary condition is that the control of the firms should be with the strategic partner.
Effectively, the two stakeholders of strategic sale are the government and the private sector partner. But at the same time, the interest of other related parties also to be considered. These parties are other shareholders and the employees.
The history of strategic sale in India shows that it was an important way for privatization. In many cases, the private sector firms got more than 51% shares in the final stages. For example in the case of BALCO, VSNL, Hindustan Zinc Limited the strategic investor holds more than 51% shares.