Status: Delisting announced and SHs approval obtained in Nov 12. Seven SHs holds around 18% stake (promoter holds 74%), so delisting is easily doable. Reverse Book Building (RBB) not yet announced and company has indicated floor price of 142.5. If one buys near 145, one bear very nominal risk of loss and stands chance of earnings 10% or more in next three month. Major risk is time risk, if like APW company delays RBB till the deadline (which is around Sept 13) than annualised return becomes meaningless.
Read analysis from Ashish Kila on slide no. 23http://perfectresearch.blogspot.in/
I am attaching the checklist which I have started following for delisting cases (picked up mostly from Neeraj Marathe and Ashish Kila posting on their blog)
Experience tells me that delisting plays are not “Head I win some, tails I win a lot”. (I have seen so many multibagger calls on delisting plays, and have invested good % of my portfolio is those delisiting themed stock during early phase of my investing)
Whenever, someone postulates a delisting play (because of the promoter wishing to do so, or some analyst predicting the same), its price skyrocket in no time to a level, which is fundamentally unjustifiable.
In small minority case, the actual delisting takes place, resulting in a decent gain of 10-40% in 3-6 months (depending upon when you bought the stock)
In majority of the case, because of the complex process of delisting, and unreasonable price the promoter has to pay for delisting the share, promoter decides not to do the delisting, and the stock falls to same level it has rose before in a speculative fashion.
Another negative is that SEBI can extend the deadline of delisting further, resulting in crash is share price.
To me, putting money in a delisting case is like a speculating on behavior of so many participants of stock market; not a nice thing to do, if you are not an expert in it.
In delisting you have many situations and in each situation risk-reward varies. I fully agree with your last statement that special situation is not for everyone. It’s a highlyspecializedfield but equally rewarding and one of the only ways [which i am aware of] which provide ways to earn high double digit market neutral returns.
In delisting, risk is minimal, once the company board and shareholder has passed the resolution and you invest close to floor price. Technically company can still decide not to go ahead with delisting, but to my knowledge there is only one case till now where company decided not go with delisting even after obtaining delisting approval from shareholders. As per SEBI rules, once the company board passes resolution delisting process needs to be completed within one year or else fresh resolution need to be passed.I am not sure when you say SEBI can extend deadline what are you referring to.
Speculation comes when one invest in overvalued stock even before delisting proposal is passed by company or before it has been approved by shareholders.
We had recently written a post on delistings on our blog wherein we argue that
The bargaining power in the delisting process is hopelessly in favor of promoters and thus extremely risky for investors
In a rational world, no delisting should succeed because of no obvious advantage to the tendering shareholder. Thus participate in delisting plays only with a speculative hope that people will continue to behave irrationally.
Because of the above, we are now generally averse to delisting plays in general.
Specific to Amrit Banaspati, it had sold off its edible oil business to Bunge for some 220 cr in Dec. Since then it has distributed some 50 cr as dividends and the balance 150 cr after debt repayment is still in the listed entity. At the indicated delisting price of Rs 142.50, the Mcap would be roughly 100 cr. Thus by successfully delisting, at this price, the promoter would become the full owner of the excess cash on books. This has already been done before in cases lke Carol Info (Wockhardt group co) and India Securities (Essar Group).
Also, the delisting would probably go through at a price close to 142.50 because by the looks of it, the requisite quantity has already been cornered by large âprobably friendlyâ shareholders J
To us it looks like trying to âpick pennies before the steamrollerâ.
Give it a pass if you will. We think it is actually heads I donât win much, tails I lose a lot…
I agree with your entire hypothesis on delisting plays. But IMHO (and I may be perfectly wrong, not much experience in special situations), it may be wrong to paint the entire canvas with same brush. Because ‘friendly group’ has cornered the large stake or infact they were always holding in this case, delisting is CERTAIN and only uncertainty is regarding whether they will pay a higher price or not. Now there is every possibility that they may not increase the price beyond floor price of 142.5, but going by the net cash on books which itself is much higher than the current market cap, there is more probability that delisted price is atleast 10% more than the floor price.
BTW, thanks so much for your comment. I really love your blog, hope to see more posts going forward.
Company needed around 11.7 lakh shares for delisting and already 13.4 lakh shares were tendered at or below 150 (floor price 142.5). So delisting will go through smoothly. expect final delisting price between 150-155.
PS: In the past failed to update my posts even after critical news, will try to be regular going forward…