Coromandel Intl has declared open offer for acquiring around 61% promoter stake of liberty phosphates at a price or Rs 241. It will then have to make open offer for acquiring additional 26% stale according to SEBI norms.
Now along with 61% promoter holding, some 15% is held by HNIs etc. So total holding is around 75%.
Usually it is seen that retail investors dont end up tendering shares in open offer to the tune of 100%… Some of them miss the opportunity due to various reasons like change of address (and hence not receiving open offer forms in time), total lack of awareness of the situation esp in family held stocks, and missing due to being in foreign countries etc (these are reasons I could think of but there could be many more reasons)
So bottomline is that if all other investors offer their shares in open offer, acceptance ratio is likely to be close to 68-70% but as expected the retail guys dont all end up offering their shares this ratio could be as high as 85-90%. If this is the scenario, then the acquisition cost for remaining shares goes below 100.(based on cmp of 212 and the buyer tendering the shares in open offer and acceptance ratio as high as 85-90%).
Risks are some hitch in the marriage of two companies due to various reasons and other risk is that all investors tender their shares in open offer and then acceptance ratio comes down and returns will diminsh.
views invited.
disc: small position taken just to educate myself in these situations.
If stock prices moves up before open offer, I would offload these shares to get outright profits.
I did analyse this situation but decided to give it a pass, as I look for absolute return of atleast 10% in a reasonablescenario. Here in the BEST case scenario that acceptance ratio is around 90% and we are able to sell the remaining shares at 170 [which I suspect might be lot less, going by steep appreciation before offer] we get absolute return of around 9%. But having said that its quite possible that before the tendering period itself price touches around 230-235. But downside risk is quite low. Secondly I am already invested for full for my special situation allocation.
I agree about the possibility of price touching 230 odd levels before tendering process is finished. IF that happens then it would be a good idea to sell.
another thing to consider would be that after all this tendering etc is done with, coromandel would be holding 61+26=87% and what they would then do would be interesting to see.
They would either have to sell around 12% to someone or in open markets to bring it down to 75% or else buyout remaining 13% or whatever stake is left.
The price is depressed at 210-11 since a big shareholder (blue dheeraj chem) is selling off his stake in the open market, since that would be tax-efficient for him.
Once his selling is over, a 5% kinda immediate move to 225ish cannot be ruled out.
No they haven’t said anything about delisting. After the completion of open offer their holding will go up 87%, so either they dilute their stake or go for delisting.
Promoters held 61%. Out of which, 5% was held by another group company, which is also acquired by Coro. So now 56% is left.
As per the Public Announcement, Coro has stated that they will buy 48 to 56% stake from the promoters. How much they buy from the promoters will depend on how much is tendered in the open offer. If full 26% is tendered, they will buy 48% from promoters. Promoters will be left with some stake in that case.
If tendering is less, then they will buy full 56% of the promoters stake.
So how much they buy from promoters is like a balancing figure. 75% minus whatever is tendered in the open offer.
Somehow my message is not appearing on the manufactured luck blog so posting it here
Hi manufactured Luck,
I think you argument that:
“Our guesswork in both cases suggests that there is a large proportion of shares disclosed as public shareholding which seem to be either related to promoters or preferential issue to corporate bodies (loosely we prefer to call them as friends of promoters shareholders). The details of the shareholding are available in more than 1% categories on the exchanges. The shares have been acquired prior to one year at a fraction of the current cost and hence for these shareholders the gains would be significant. The taxability of the same can be very different for them depending on how they choose to sell their shares. They would be liable for a zero long term capital gains tax (after paying STT) if sold in the market OR if they choose to tender the shares in the open offer their incomes would be taxed at the normal marginal rates of taxation. Hence it makes tremendous sense for them in our view to sell the shares in the open market even if it means at a discount to the offer price. (In the case of Liberty Phosphate the bulk deals disclosures show Blue Deebaj Chemicals LLC holding roughly 14% of equity having sold nearly a third of their holding at Rs214 while the offer is at Rs241)”
Has flaws
If I were such a company sitting on huge long term gains I would have booked those gains say today and would have bought the same number of shares or more shares the next day.
This way I don’t pay any tax when I book profit at say 210 and thereafter I buy it back again at say 210 and tender in offer at 240 this way I pay capital gains tax on rupees 30 only.
I think there can only be one reason here which is the risk of deal failing or the uncertainty over the approval time which is keeping the price at a substantial discount to the open offer price.
There are so many people close to this deal who understand the transaction well.
Apologies, both of us did not have internet access till now for some reason. Have just posted your response as well as our reply.
Its quite possible that we may be missing out on certain risks. We dont wish to be blindly certain about our views. Which is why the post!! However, what you saying is that the “price is always right”. Which is not our school of thought.
I like your partner buddy approach just like buffet and munger)).
I am saying that the tax argument you have given does not stands true as street smart HNIs or promoters can very well manage the tax issue as I have explained above.
I don’t believe in “price is always right” theory otherwise I would not be looking for bargains in the market.
I won’t deny that the stock has a 10% upside pre open offer.
