ABG Shipyard on Wednesday sold off its entire 8.27% stake in Great Offshore, signalling an end to its six-month-long race with rival Bharati Shipyard for acquiring the company.
ABG sold its 30.78 lakh shares for Rs176.40 crore, making a profit of Rs51 crore. Of this, 29.53 lakh shares were traded through eight bulk deals at an average selling price of Rs573 a share. Edelweiss Finance & Investment and ECL Finance together grabbed 20.78 lakh shares, while Carmona Investment & Finance got 2.5 lakh shares. Market sources hinted at the possibility of Carmona and Edelweiss having purchased the shares on behalf of Bharati.
The move came just a day before the two bidders were supposed to begin simultaneous open offers. Bharati’s offer was to acquire over 78 lakh shares at Rs590 a share, while ABG would have battled for 1.26 crore shares at Rs520 a share. Bharati on Tuesday increased the open offer price by 5.4% from Rs560 earlier.
Kunal Lakhan, analyst with broking house KR Choksey, said it would be incorrect to say that ABG lost the battle. “The company made a profit from its investment over the last six months. Nevertheless, this was totally unanticipated as ABG has shown keen interest in not only acquiring majority but also management control in Great Offshore. We remain concerned over Sebi’s reaction to this last-minute action.”
ABG’s open offer would still be active and investors can technically tender their shares in the offer. However, it is highly unlikely the investors will favour ABG’s offer (@Rs520) over Bharati’s offer (@ Rs590).
J R Varma, former member of the Securities and Exchange Board of India (Sebi), feels the situation has turned messy because of the takeover rules, under which a shareholder has to forecast the number of shares he wants to tender to Bharati and to ABG, respectively, since he has to tender to both simultaneously.
“In the case of Bharati and ABG, both are partial offers and they are not battling for a 100% stake. This is creating a mess and Sebi does not make it easy for the bidder with a lower price to exit as Bharati at Rs590 cannot accept all the shares tendered to it (as the open offer is for a 20% stake). In this case, the shareholder has four options — he can tender some part of his shares to Bharati or some part to ABG or sell it to the market or keep the shares unsold and remain the shareholder of Great Offshore,” Varma said.
And that’s not all. “The shareholder has to ask if Great Offshore share will trade above Rs520, but according to me the share will trade below Rs520. So the shareholder might think that it is wise to sell some shares at Rs520 rather than not selling at all. The takeover review committee of Sebi should make it a 100% offer than a partial one,” said Varma.
As things stand, in order to avoid the violation of Sebi norms, ABG would have to go ahead with the open offer even if it has exited the target company.
Jayant Thakur, a chartered accountant and expert on securities law, pointed out that the company has not sought any exemption from the regulator. “Also, as the offer starts just a day after the stake-sale development, it might be late for Bharati to file for an additional open offer while the first one is in the process, under regulation 12 of Sebi takeover code, which allows management control for the company. If Bharati is still keen on management control, they will have to immediately file for a second open offer on the completion of the first one at the same price,” said Thakur.
However, sources close to Bharati said the company is not keen on management control anymore and so will not go for another open offer under regulation 12.
Mahantesh Sabarad, senior research analyst, Centrum Broking, feels ABG made a smart move by exiting as the price it was bidding against was very high. “This price might have been too high for ABG to match and even if the company has enough cash for the acquisition, at a cost level, there is also a payback period involved, which would have exceeded the comfort levels of ABG.”
In order to acquire 23% (8,651,804 shares) in Great Offshore, Bharati invested Rs 322.32 crore at an average cost of Rs372.54 a share. The company would need another Rs461.78 crore to acquire 20% through the open offer at Rs590 a share.
As on March 31, Bharati had a debt of Rs1,002.81 crore and cash of Rs227.97 crore on its books. As on September 25, its balance with designated banks was Rs10.38 crore, while it held Rs70 crore in fixed deposits, Rs52.97 crore in open offer escrow account, and Rs5 crore in balance at other banks.
“At Rs560 a share, we needed Rs438.85 crore, but now that we have upped the price to Rs590, we need Rs461 crore and the incremental amount would be taken from a split between the fixed deposit and the escrow account,” a Bharati spokesperson said.
The bid for Great Offshore began in late May when Bharati acquired the founder’s stake after he failed to repay margin calls on shares, which he had pledged, prompting an open offer under takeover rules. ABG entered the fray in late June with a higher offer, which then led to a series of counter bids by the two companies.
The price war has benefited Great Offshore shareholders as the stock has appreciated around 33% since Bharati Shipyard made its first open offer on June 3 at a price of Rs344 per share. Bharati and ABG, however, have shed 2.34% and 11.2%, respectively since that day.
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