Tactful Management Research Journal

Vol. 1 , Issue. 3 , Dec 2012 ISSN :2319-7943

ORIGINAL ARTICLE

“CURRENT STOCK MARKET SCENARIO-DELISTING OFFERS”

KISHOR NIVRUTTI JAGTAP

M.Com., M.Phil., Ph.D., M.B.A., L.L.B., D.T.L., D.L.L.&L.W., G.D.C.&A

Smt. C.K.Goyal Atrs and Commerce College, Dapodi, Pune

Abstract:

The securities market has two interdependent and inseparable segments, viz.
the primary market and the secondary market. The primary market is the channel for
creation of new securities through financial instruments by public limited companies as
well as government agencies, whereas secondary market deals in securities already
issued. The resources in the primary market are mobilized either through the public
issues or through private placement. It is a public issue if anybody everybody can
subscribe for it, whereas if the issue is made available to a selected group of persons it is
termed as private placement.

INTRODUCTION

Listing means admission of securities of an issuer to trading privileges [dealings] on a stock

exchange through a formal agreement. The prime objective of admission to dealings on the exchange is to
provide liquidity and marketability to securities, as also to provide a mechanism for effective control and
supervision of trading. The stock exchange offers for listed securities an open auction market where buyers
and sellers meet on terms of perfect equity to evolve an active market price. These dealings take place
subject to a well defined code of bye-laws and regulations and full and prompt publicity is given to every
transaction. This permits the flow of savings in listed securities and facilitates their immediate conversion
into cash at equity prices. One of the basic functions of the exchange is to assist and facilitate trading in
securities. The companies would get their shares and debentures listed for trading after satisfying certain
prerequisites for listing. The guidelines in this regard are approved by Government and SEBI and embodied
in the listing agreement. The listing is compulsory for public limited companies under certain conditions.
As per the Securities Law [Amendment] Act 2004, delisting of securities means a recognized stock
exchange may delisted the securities, after recording the reasons there for, front any recognized stock
exchange on any of the ground or grounds as may be prescribed under this Act.

How does a delisting offer work?

The process of voluntary delisting begins when promoters of a company inform it of their
intention to buy all outstanding shares and delist the company. The board of directors approve the same and
inform the stock exchanges. Subsequently, the shareholders, excluding the promoters have to approve the
delisting process with a two-third majority. Once the approvals are in place, the delisting process takes
place in a reverse book building format. Under this the shareholders convey the price at which they are
willing to sell their shares to the company. For this purpose the company sets a 'floor price' in accordance
with SEBI rules, above which the bidding takes place.
In a number of cases, companies voluntarily offer a higher price to draw investor interest. This is
called 'indicative offer price'. However, the shareholders are free to bid at whatever price is reasonable
according to them. To successfully delist the shares, the promoters need to acquire at least 50% of the
outstanding shares and take their holding beyond 90% of the paid up capital. Once the shareholders submit
their bids, the company finds the price point at which the requisite number of shares can be acquired. This is
Please cite this Article as : KISHOR NIVRUTTI JAGTAP , “CURRENT STOCK MARKET SCENARIO-DELISTING
OFFERS” : Tactful Management Research Journal (Dec. ; 2012)
 “CURRENT STOCK MARKET SCENARIO-DELISTING OFFERS”

called the 'discovered price'. Finally, it is the prerogative of the promoters whether to accept the discovered
price. There have been instances where aggressive bidding by retail shareholders has taken the discovered
price beyond the promoters acceptance limit. As a result the delisting failed. It is impossible to predict what
the promoters will accept finally. In several cases, the promoters have given a substantial premium over the
floor price to make the delisting offer successful. If the promoters accept the 'discovered price' or the
delisting offer succeeds, the same rice becomes applicable to all shareholders tendering their shares. This is
followed by cessation of trading for the scrip on bourses. The company has to offer the same price to any
shares tendered to is up to one year after the delisting date.

CURRENT STOCK MARKET SCENARIO-

Retail equity investors are in a difficult situation. The Indian stock market, in a downtrend for
more than a year, has lost over 25% and figures among the world's worst performers. The bad news is far
from over though. Apart from macroeconomic troubles like slowing economic growth and mounting
budget deficit, a sharp depreciation in the rupee over the last year has opened up another avenue of woes for
Corporate India. Analysts are already skeptical about India Inc's performance in the second half of the
financial year 2012.
These uncertain times call for retail investors to adopt defensive strategies. It is important to focus
more on avoiding capital erosion now, rather than looking at spectacular returns. Investors should look for
potential delisting candidates fundamentally strong scrip's that won't fall to much in a week market, but
offer potential for opportunistic gains. Some recent examples demonstrate how investors stand to gain
even in times of economic uncertainty when companies decide to buy back their own shares in a bid to
voluntarily delist. UTV Software, Carol Info Services, Ineos ABS, Alfa Laval, Patni computers have all
generated hefty returns for long term investors defying the overall market weakness in the second half of
2011.

Ongoing Offers

A number of companies have already begun the process of voluntarily delisting their shares form
Indian stock exchanges. In most cases ETIG analysts recommend that the shareholder should avail of the
attractive prices and tender their shares in the open offer. After all, a retail shareholder won't have much use
for shares in a company once it delists. At the same time, the profits booked here can be invested in other
avenues. If one does not already hold shares in these companies, buying right now, however, may not be a
correct strategy. It is true that the shares can still generate some 5-10% return by the time delisting takes
place. However, the risks involved that don't justify buying now. If the delisting offer fails due to any
reason, the stocks could correct heavily.

Ongoing Delisting Offers

1.UTV Software

UTV softer communications has interests in movie production, broadcasting, television and
games. A major chunk of its total revenues comes from film production, which is characterized by
uncertainties. In recent times, most its releases were not received well at the box office, which has impacted
its performance. It doesn't have any major release planned for the rest of financial year 2012 either, which
will keep its numbers depressed. The company's balance sheet is also not very strong with debt-to-equity
ratio of 1.34 while its peer Zee Entertainment is almost debt free. The recent spurt in UTV's share price is
solely due to the buyback offer from its promoters. Investor need to make the most of this offer, failing
which the scrip may correct substantially.

2.Alfa Laval

Alfa Laval scrip is trading at a price-earning multiple [P/E] of nearly 39, which is not only at a
premium to its peers but also to its highest valuation during the 2007 boom. This is solely due to the buyback
offer and indicative price of Rs. 2,850/- per share. Alfa Laval manufactures industrial equipment such as
separators, decanters and sanitary flow equipment apart from distillery and vegetable oil refinery projects.
It had a tough year in 2010, but is back on track in 2011. It remains debt-free, cash-rich with a long dividend-
paying record. Still considering the premium valuation retail investors should consider participating in the
offer.

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 “CURRENT STOCK MARKET SCENARIO-DELISTING OFFERS”

3.Carol Info Services

Carol Info Services, a sister concern of Wockhardt, provides contract manufacturing services for
nutraceutical and milk based product. Its adjusted profit has remained stable over the last three years.
However, its major revenue comes from renting out its large property in the Bandra Kurla Complex,
Mumbai. Beside the company has signed a deal to sell its nutraceutical manufacturing facility to Danone for
over Rs.350/- crore. Considering the value the land and the cash flow from the deal, the indicative buyback
price Rs.160/- per share appears less. The stock is already trading at a higher price indicating anticipation of
a higher revised offer-something that appears imminent since a major part of the public shareholding is
consolidated.

4.Patni Computers

The new management led by iGATE Global Solutions and Pan Asia iGATE Solutions has obtained
investor's nod to delist Patni Computers Systems in which they had acquired a controlling stake by paying
Rs.503/- per share a year ago. After touching a high of Rs.485/- in April, Patni's stock had plummeted to the
low of Rs.250/- in August following the company's lacklustre financial performance. Since then the stock
has regained momentum following the delisting buzz. It now trades at around Rs.465/-. Patni's stock is
likely to approach the price at which iGATE bought the majority stake in the coming weeks, which is 8%
above the current level.

5.Ineos ABS

The Ineos offer in Ineos ABS is primarily due to change in its promoter group and hence not
technically a delisting offer. However, since the promoters already hold 83.33% its effect would be similar.
After two exciting years in 2009 and 2010, the company had a flattish 2011due to a steady transfer of profits
to contingency reserves. In addition, a forex loss hurt its September quarter profits. Still the company's
business in specialty high end engineering plastics remains lucrative. Its valuations at per equity of 15.5 and
price-to-book value of 2.8 appear reasonable. Investors are advised to forego the current open offer at
Rs.606.8 per share in anticipation of a more lucrative delisting offer in months to come.

UTV Alfa Carol Patni Ineos

Software Laval Info Computers ABS
Services
1035.5 2756.1 170.65 470.7 598.2
CPM [Rs.
189.6 39.2 26.5 16.7 15.9
P/E
835.0 2045.0 106.0 N.A. 606.81
Floor Price [Rs.]
70.04 88.77 63.73 67.08 83.33
Promoter Stake [%]
85.1 127.8 12.4 2.8 50.7
1 Year return [%]
25.1 16.7 10.6 18.2 10.6
Industry Average P/E
1000 2850 160 N.A. N.A.
Indicative Price [Rs.]
122.2 20.4 128.5 267.3 29.3
Shares Outstanding [Lakh]

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 “CURRENT STOCK MARKET SCENARIO-DELISTING OFFERS”

CONCLUSIONS-

The new year has not given retail investors much to cheer about. A bouncy pitch to bat on coupled
with a cloudy climate have made life difficult for most. Worse, things are unlikely to improve in a hurry. It
makes sense therefore to play with a straight bat and preserve your wicket. And if you hang in, the boundary
balls will come. In the current stock market scenario, delisting offers are those boundary balls you need to
cash in on to keep the returns flowing.

REFERENCES

1.Practical Approach to Business Investment Decisions - Briston, Richard J. and Jack

2.Investment Strategy - Coates, Robert C.
3.Investment Management - Fabozzi, Frank J.
4.Investment: Analysis and Management - Fried, Sidney.
5.Predictability of Stock Market Prices - Granger, Clive W.
6.Capital Investment Decisions - Meredith G. G.
7.The Capital Market in India - Sinha S. L. N.

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