Four mid-size brokerage houses chalk out a grand merger plan

MUMBAI: Battling a difficult market and low trading volumes, four mid-sized stockbrokers in Mumbai are close to strike a merger deal. Antique Stock Broking, Sunidhi Securities and ITIBSE 3.86 % are expected to merge withFortune Financial ServicesBSE 5.00 %, a BSE-listed broker, according to three people close to the development.

The concerned parties have signed an MoU to execute the proposed merger and have also approached the Registrar of Companies (RoC) to finalise a name for the merged entity which would be either calledInvestment Capital Trust India or India Investment Trust. Besides broking, the new company would also sponsor outfits to carry out non-banking finance and distribution of financial products.

According to stock market circles, the development could be a precursor to further consolidation in the business. The current market capitalisation of Fortune FinancialBSE 5.00 % is Rs 91 crore.

The proposed merger would be a shareswap deal and Sudhir Valia, executive director of Sun Pharmaceuticals and brother-in-law of Sun PharmaBSE 1.44 %founder Dilip Sanghvi, would infuse Rs 300 crore into the merged entity, said sources familiar with the deal. According to the agreement, key promoters of all the brokerages will have seats on the board of the merged entity.

Valia, along with his wife Raksha, holds 5.4% stake in Fortune Financial and has launched an open offer of more than Rs 55 crore to acquire additional shares in the broking company. Valia has been a whole-time director of Sun Pharma since 2005 and is responsible for departments like finance, commercial operations, projects and quality control. He is also a director of Caraco Pharmaceutical Laboratories and Taro Pharma.

In July, Sharyans ResourcesBSE 1.49 % had picked up 15% in Fortune. Sharyans, the promoter of ITI Securities and Financial Services, is run by Vijay Choraria who will be offered directorship in the merged entity. Antique, with 250 institutional clients and 150 employees, is promoted by Kriti Doshi, Gagan Chaturvedi and Rohit Kothari. While Doshi is an old-time stockbroker, Chaturvedi is the director of accounting and audit firm Chaturvedi & Shah. Chaturvedi is said to have resigned from the board of Antique some time ago, said a source.

According to Antique's filing with the ministry of corporate affairs, the company earned a net profit of Rs 16 crore on an income of Rs 83 crore for the financial year ended 2011. Fortune posted a net loss of Rs 13 crore on an income of Rs 63 crore for the financial year ended March 2013.

Fortune was founded in 1991 by JT Poonja and Nimesh Shah, and has about 30 branches and 100 franchisees across India. Fortune has 12 public shareholders, who together hold 78.92% stake in the company. Shah owns 13.11% in Fortune, as per the company's filing with BSE. Among the public shareholders, Europe-based Nogard Investment holds around 14% stake in Fortune through an investment made in 2008. Britain-based investors Lytton Grove Corp and Bomin Finance together hold 20% in the brokerage firm.

Jasvantlal Chhotalal, PR Subramanyam & Sons and Jayesh Parekh had merged their memberships to form Sunidhi Consultancy Services in the '90s'. It was later renamed Sunidhi Securities. Besides stocks, the brokerage is also into forex trading.

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