Buybacks, delisting offers, open offer by parent companies on their Indian units, are a good time for investors to evaluate holdings of shares.
A lot of offers are lined up, including AstraZeneca Pharma’s delisting offer and Moody’s offer to hike stake in Indian unit Icra to 55 per cent. Last year, there were similar offers: from Unilever for Hindustan Unilever and global rating firm Standard & Poor’s offer to hike stake in its Indian venture Crisil to 75 per cent.
The question now arises: what should investors do about such offers?
“Investors should look at companies on a case-to-case basis. If the balance sheet is clean and there are free cash flows, it will be better for investors to hold on to such stocks,” said Pankaj Pandey, head of research at ICICIDirect.
Investors could fetch better prices in future by holding on to such stocks. However, if companies are struggling and valuations are better, investors could participate in such offers, he said.
Several small and midcap firms, including Motilal Oswal Financial Services, Great Eastern Shipping, Crompton Greaves, Aptech, Nitin Fire Protection Industries, eClerx Services and Jindal Steel & Power have come out with share buybacks in recent months. Firms go for share buyback in order to reduce the number of outstanding shares to increase the value of shares or to eliminate any threats by shareholders who may be looking for a controlling stake.
To stop companies announcing buybacks just to push up stock prices, capital markets regulator Sebi last year tightened rules for share buybacks by mandating companies to purchase at least 50 per cent of the offer size, failing which they will have to forfeit 2.5 per cent of the total amount earmarked. To ensure a higher capital commitment from companies, the regulator has also made it mandatory for them to put 25 per cent of the amount earmarked for buyback in an escrow account and to complete their share purchase offer within six months from the current 12-month period.
Valuations are key in deciding whether to participate in buybacks or not. As far as AstraZeneca’s delisting offer is concerned, Sarabjit Kour Nangra of Angel Broking recommended investors participate in the offer as prices are attractive at current levels. The company is yet to announce the delisting price, but it will be linked to prevailing market prices, it is expected.
Moody’s also is offering attractive price at Rs 2,000 apiece for Icra compared to its share price of Rs 1,514 a day before the offer. The offer is at 35 per cent premium from Icra's stock price a day before the announcement. The stock has rallied on the news and is trading in the Rs 1,881-1,890 range. The company is spending as much as Rs 530 crore for the offer.
The premium was similar when US ratings firm Standard & Poor’s announced an open offer for 22.23 per cent in its Indian arm, Crisil. The offer is worth nearly Rs 1,900 crore. The offer has given rise to speculation that Crisil may eventually be de-listed.
The open offer was at Rs 1,210 a share, 29 per cent more than the Crisil’s stock price before the announcement. Crisil share was locked at the maximum permissible limit of 20 per cent at Rs 1,126.60 (up Rs 187.75) when the offer was made public. Investor Rakesh Jhunjhunwala who owned 7.69 per cent in Crisil, brought down his stake to 5.66 per cent by tendering a small part of his holdings. This showed his confidence in the stock to perform much better over the long term.
The offer saw the promoters McGraw Hill Financial eventually hiking stake in the Indian venture from 52.77 per cent to 67.69 per cent, well short of the intended 75 per cent.
Cairn Energy plc, which also planned a $300 million share buyback offer, stopped the plan as it is unable to sell its 10 per cent stake in Cairn India due to a tax dispute.
Sudip Bandyopadhyay, managing director and CEO of Destimoney Securities, said investors need to scrutinise the offers, including details like what percentage of the floating stock the company is buying back and the prevailing price versus the offer price. “If the floating stock is 50 per cent and the offer is for 10 per cent, your chance of acceptance is only one-fifth,” he explained, adding investors need to weigh this aspect before deciding to submit the shares for buybacks.
Further, if the stock price has run up on the buyback or open offer in the wake of the announcement, then investors can sell the shares directly in the secondary market.
“Directly selling in the market is more tax efficient than tendering the shares in the open offer or buybacks,” Bandyopadhyay pointed out, adding in buyback or open offers, the investor does not get the benefit of zero tax on long-term capital gains.
Since the investor does not transact through stock exchanges, there will not be security transaction tax on the shares tendered. The tax would be 20 per cent with the benefit of indexation or 10 per cent without the benefit of indexation.
Unilever paid Rs 600 apiece for its Indian unit Hindustan Unilever last year, taking its stake up to 67.25 per cent lower than the intended 75 per cent. After the offer, the stock price rose above the open offer price to Rs 725 apiece, which means investors who did not participate in the open offer could have gained significantly if they had sold the shares directly in the market at the time. Currently, the stock is quoting below the offer price at Rs 578.15 apiece.
Recently, UK’s Glaxo Group’s open offer for its Indian unit GlaxoSmithKline Pharma, in contrast, succeeded in the parent raising the stake to 75 per cent. The voluntary open offer made by GSK was to purchase 20.61 million sharers at Rs 3,100 per share. The share price is now trading well below the offer price at Rs 2,570 apiece.
Simply put, buybacks and open offers give investors plenty of options to reposition their shareholdings. Whether to participate in the open offer, whether to sell their holdings directly in the market or to hold on to their investments is a call each investor has to make by scrutinising the offers.
This artcle is taken from: http://www.mydigitalfc.com/stock-market/when-there’s-open-offer-don’t-close-your-mind-075
A lot of offers are lined up, including AstraZeneca Pharma’s delisting offer and Moody’s offer to hike stake in Indian unit Icra to 55 per cent. Last year, there were similar offers: from Unilever for Hindustan Unilever and global rating firm Standard & Poor’s offer to hike stake in its Indian venture Crisil to 75 per cent.
The question now arises: what should investors do about such offers?
“Investors should look at companies on a case-to-case basis. If the balance sheet is clean and there are free cash flows, it will be better for investors to hold on to such stocks,” said Pankaj Pandey, head of research at ICICIDirect.
Investors could fetch better prices in future by holding on to such stocks. However, if companies are struggling and valuations are better, investors could participate in such offers, he said.
Several small and midcap firms, including Motilal Oswal Financial Services, Great Eastern Shipping, Crompton Greaves, Aptech, Nitin Fire Protection Industries, eClerx Services and Jindal Steel & Power have come out with share buybacks in recent months. Firms go for share buyback in order to reduce the number of outstanding shares to increase the value of shares or to eliminate any threats by shareholders who may be looking for a controlling stake.
To stop companies announcing buybacks just to push up stock prices, capital markets regulator Sebi last year tightened rules for share buybacks by mandating companies to purchase at least 50 per cent of the offer size, failing which they will have to forfeit 2.5 per cent of the total amount earmarked. To ensure a higher capital commitment from companies, the regulator has also made it mandatory for them to put 25 per cent of the amount earmarked for buyback in an escrow account and to complete their share purchase offer within six months from the current 12-month period.
Valuations are key in deciding whether to participate in buybacks or not. As far as AstraZeneca’s delisting offer is concerned, Sarabjit Kour Nangra of Angel Broking recommended investors participate in the offer as prices are attractive at current levels. The company is yet to announce the delisting price, but it will be linked to prevailing market prices, it is expected.
Moody’s also is offering attractive price at Rs 2,000 apiece for Icra compared to its share price of Rs 1,514 a day before the offer. The offer is at 35 per cent premium from Icra's stock price a day before the announcement. The stock has rallied on the news and is trading in the Rs 1,881-1,890 range. The company is spending as much as Rs 530 crore for the offer.
The premium was similar when US ratings firm Standard & Poor’s announced an open offer for 22.23 per cent in its Indian arm, Crisil. The offer is worth nearly Rs 1,900 crore. The offer has given rise to speculation that Crisil may eventually be de-listed.
The open offer was at Rs 1,210 a share, 29 per cent more than the Crisil’s stock price before the announcement. Crisil share was locked at the maximum permissible limit of 20 per cent at Rs 1,126.60 (up Rs 187.75) when the offer was made public. Investor Rakesh Jhunjhunwala who owned 7.69 per cent in Crisil, brought down his stake to 5.66 per cent by tendering a small part of his holdings. This showed his confidence in the stock to perform much better over the long term.
The offer saw the promoters McGraw Hill Financial eventually hiking stake in the Indian venture from 52.77 per cent to 67.69 per cent, well short of the intended 75 per cent.
Cairn Energy plc, which also planned a $300 million share buyback offer, stopped the plan as it is unable to sell its 10 per cent stake in Cairn India due to a tax dispute.
Sudip Bandyopadhyay, managing director and CEO of Destimoney Securities, said investors need to scrutinise the offers, including details like what percentage of the floating stock the company is buying back and the prevailing price versus the offer price. “If the floating stock is 50 per cent and the offer is for 10 per cent, your chance of acceptance is only one-fifth,” he explained, adding investors need to weigh this aspect before deciding to submit the shares for buybacks.
Further, if the stock price has run up on the buyback or open offer in the wake of the announcement, then investors can sell the shares directly in the secondary market.
“Directly selling in the market is more tax efficient than tendering the shares in the open offer or buybacks,” Bandyopadhyay pointed out, adding in buyback or open offers, the investor does not get the benefit of zero tax on long-term capital gains.
Since the investor does not transact through stock exchanges, there will not be security transaction tax on the shares tendered. The tax would be 20 per cent with the benefit of indexation or 10 per cent without the benefit of indexation.
Unilever paid Rs 600 apiece for its Indian unit Hindustan Unilever last year, taking its stake up to 67.25 per cent lower than the intended 75 per cent. After the offer, the stock price rose above the open offer price to Rs 725 apiece, which means investors who did not participate in the open offer could have gained significantly if they had sold the shares directly in the market at the time. Currently, the stock is quoting below the offer price at Rs 578.15 apiece.
Recently, UK’s Glaxo Group’s open offer for its Indian unit GlaxoSmithKline Pharma, in contrast, succeeded in the parent raising the stake to 75 per cent. The voluntary open offer made by GSK was to purchase 20.61 million sharers at Rs 3,100 per share. The share price is now trading well below the offer price at Rs 2,570 apiece.
Simply put, buybacks and open offers give investors plenty of options to reposition their shareholdings. Whether to participate in the open offer, whether to sell their holdings directly in the market or to hold on to their investments is a call each investor has to make by scrutinising the offers.
This artcle is taken from: http://www.mydigitalfc.com/stock-market/when-there’s-open-offer-don’t-close-your-mind-075
