Came across this article from the great Sanjay Bakshi.
http://business.outlookindia.com/article.aspx?285698
A key point he makes in his article about Unilever:
The likely explosion in spending is, in my view, a key reason why Unilever recently made a tender offer to increase its stake in its local Indian subsidiary at a P/E multiple of 34. This is a very significant development because for the first time, instead of taking money out of India, Unilever is putting money into it. Unilever is paying up for quality.
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Now here is my thesis on Open Offer of Unilever
Definitely this is not a buyback like Reliance. HUL wants the buyback to be successful.
Most of the shares are held by MFs and FII - LIC being a major shareholder @ 3.2%.
Now since HUL is a part of all major Stock Indexes, selling/tendering HUL would mean the fund is basicallyUNDER-WEIGHTINGthe HUL stock in their portfolio.
In my humble opinion, any fund which has BSE/NIFTY as its benchmark would not commit the mistake ofUNDER-WEIGHTINGHUL in its portfolio, especially when HUL itself is showing so much confidence in its own business.
In such a scenario, I think these institutions will not tender the shares at 600 unless the offer is further sweetened a say atleast upto 700 or even higher.
Scenario 1 a Offer is not sweetened
We buy at CMP of 580, and tender at 600. Our loss is the opportunity cost.
Scenario 2 a Offer is sweetened
We get the benefits of the upside. Should be substantial. Even at 700 Rs. it comes to approx 17% returns.
Plus can we not sell at all ???
Please let me know, if I am going wrong somewhere in my hypothesis.
