Just to add, the biggest risk in such situations is that the announced event will not take place. Although the probability of the event not taking place was almost zero, the operation involved purchasing the shares from the market and selling them in the market, hence benefiting from price appreciation and not, purchasing the shares from the market and tendering them in the open offer, which would have been a different operation as follows:
)- Purchase at about 67/share
)- Tender the shares in open offer. The offer was to acquire 26% of the share capital at 81/share. The acquirer had acquired 44% of the share capital from the promoter, The acquirer would have about 70% in the company if the open offer went through successfully
)- Assuming ~4-5% of the share capital will not be tendered. If the rest ~52% tender, it would mean that for every two shares that are tendered, one will go through
)- Say, I acquired 100 shares at 67/share, and 50 shares went through at 81/share, I would still be left with 50 shares at 53/share. Would this have been a comfortable situation? There were three factors to consider:
a. As per the open offer document, the volume-weighted average market priceof the shares for a period of sixty tradingdays immediately preceding the date of the PAas traded on the NSE was51/share. All else the same, there was a good chance that stock price would come down to 51/share or below post the process was complete
b. FY12 EPS of 3.44 and a price of 53/share would mean a P/E of 15.4; if one considers Q1FY13 results, LTM P/E would be 17.6. This wasn’t comforting, especially given the not so great return ratios and lower valuation for comparable/better companies
c. The facts mentioned above implied that for the shares not accepted in the open offer, it would be best to sell them in the market. Assuming a complete exit of the remaining shares at 72/share, the total returns in the process would be 14.2%. While higher than the returns in previous case, the returns would have diminished with time, with a possibility of no exit for a few days (say because of lower circuit). As such, the option of purchase and sale in the market was preferred