Merchant bankers maintain that very often the price becomes unattractive by the time the offer is open, making it difficult for promoters/acquirers to successfully complete the offer. In such cases, investor's response generally is not positive, forcing the acquirers either to revise or cancel the offer, they say.
More than half a dozen companies, including Ambuja Cements (ACL), Foseco India, Garware Offshore Services, Tata Investment Corporation (TIC), DCM Shriram Inds, SRF Polymers and Gokaldas Exports (GEL), have announced such offers in the past few months. The size of these offers ranged from Rs 10 crore to as high as Rs 4,721 crore (Ambuja Cements).
Three of them ACL, TIC and GEL have already closed their offers though no information on the public response was available with BSE. Since the open offer announcement, DCM Shriram Inds has consistently been climbing to new highs, almost doubling to Rs 124 in the past one month.
The stock, in fact, is quoting at a 3% premium to the offer price of Rs 120. While the acquirers had originally fixed the price at Rs 70 per share, they were subsequently forced to revise it to Rs 120 on account of a sharp rally in the share price. The offer opens on January 3, 2008, and closes on January 24.
Among other notable examples, Foseco India and Garware Offshore Services are currently quoting at a premium of 16% and 13%, respectively, to their offer prices. While the offer opens on December 5, 2007, and January 1, 2008, respectively, any further rise in the share prices will make it difficult for the acquirers to get a positive response from shareholders, say merchant bankers.
"Shareholders generally have high expectations about valuations of their company, which get factored in share prices ahead of an open offer. They mostly like to tender their holdings only if the premium is significantly high," said Almondz Global Securities head of investment banking Sharad Rathi.
In the past, many MNCs were unable to complete their offers successfully as prices shot up to levels their foreign parents thought was not reasonable enough to accept. Some of them had to make repeated efforts to take the foreign parents' stake beyond 90%, the delisting limit prescribed by Sebi.
They mostly opted for reverse book building route, which involves bidding process. There is always a possibility that large investors, holding a major chunk of equity in a particular company, would speculate the price ahead of the offer or bid at abnormally high price, thus disturbing the delisting process, says an investment banker.