It's going to rain open offers

MUMBAI: A spate of open offers is expected to hit the market this month, which could see a large number of shares change hands between promoters and shareholders. The purpose behind such offers could be either to delist or to acquire control of another company.

The amount of capital gains that investors hope to make by selling back shares to promoters/acquirers will be a crucial factor in deciding the fate of such offers, said analysts.

In the past, many offers including those from MNCs' parents failed to elicit a positive response. Typically, once a company makes an announcement, share prices keep rising, thereby narrowing the gap between the offer and the market price before the opening of the offer. In some cases, promoters were even forced to hike offers after share prices rose beyond the fixed floor price.

"The industry is witnessing a lot of M&A activity as corporates want to scale up their businesses, eliminate competitors and control a larger market share. The trend is evident across sectors," said Religare Securities head of investment banking Kiran Vaidya.

Apart from Esab India and SSI, the list includes Sparsh BPO, Petron Engineering, Chettinad Cement, Lanco Global, Lanxess ABS and Shirpur Gold Refinery. The promoters of these eight companies will spend between Rs 27 crore and Rs 241 crore (SSI) to buy back shares.

At current levels, share prices of these companies have been quoting close to their offer prices. Esab India, Lanco Global and Shirpur Gold Refinery are, in fact, trading at a substantial premium to their offer prices.

On Monday, Esab closed at Rs 479 compared to the floor price of Rs 426, while Lanco closed at Rs 64.25 against Rs 43.8. Shirpur quoted at Rs 70 against Rs 54.75 on BSE. In such a situation, promoters may have to hike the floor price if they are keen on going ahead with their plans, said analysts.

Two more offers -- Sesa Goa and Mount Everest Mineral Water (MEMW), will hit the market soon. Both the scrips are quoting at a discount of 8.4% and 13%, respectively to their offer prices. The open offer schedule is awaited in both these cases.

"Success of the forthcoming offers depends on many factors such as fundamental background of the concerned companies, their prospects, shareholders' perception about promoters' capacity to pay higher price and market conditions," said an investment banker.

While a growing number of companies have been taking the open offer route either to delist shares or simply to hike promoters' stake, not many of them have tasted success.

Though the trend is mostly evident among foreign parents of MNCs operating in India, cash-rich promoters of Indian companies have also been on an acquisition spree over the past few years.

The advantages are many. If the intention is to delist shares permanently, promoters can hope to save on cost of listing, documentation and most importantly, can pocket the entire dividend, said analysts.


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