Multinational companies often have a quiet tussle with some of the large shareholders in fixing the open offer price. Many such offers could not be completed successfully in the past because the latter would remain adamant on pricing and sometimes demand a valuation that promoters would find too high to accept. Learning from past experiences, MNCs are now adopting a proactive approach and taking big shareholders into confidence to ensure that offers sail through.
Some MNCs have successfully closed out open offers by taking advantage of a provision in the SEBI takeover code, which provides for an upward revision in the price even when the offer is on. The price is revised after negotiating with large shareholders whose participation also helps attract smaller shareholders to the offer, according to senior investment bankers.
The strategy that seems to be working for MNCs center around such companies announcing the offer price that is close to the pricing is based on SEBI’s formula. This is done in anticipation that the stock will shoot up soon after the announcement, thus calling for a revision at a later stage.
Normally, there is a few weeks gap between the announcement and the offer opening. During this time, talks are held with large shareholders on the price that would be acceptable to both the acquirer and shareholders. Once an informal understanding is reached between them, the price is revised even while the offer is on. Lead managers are understood to be playing a major role in reaching out to large shareholders and convincing them to participate in open offers.
MNCs and large shareholders usually have some kind of informal dialogue to arrive at the price acceptable to both of them. It is difficult to negotiate the price in a bull run as expectations are too high. MNCs, however, are in an advantageous position in a bear market when the scope for bargaining is limited for shareholders.
Investment bankers are constantly in contact with large shareholders during the offer time. They try to get some idea about what price would be acceptable to shareholders and accordingly give the feedback to the concerned company which takes a final call on price revision.
Recently, a few MNCs such as BASF and BOC India opted for a revision in offer price, after which they successfully completed their respective offers. In case of BASF India, the German chemical major’s Indian subsidiary, the foreign parent revised the price from Rs 274 to Rs 300 a share after the offer opened. The offer price was hiked two weeks ahead of the closing. According to capital market sources, the offer has received good response with the promoters acquiring 18-19 per cent of the equity against the 22.3 per cent offered in the open offer. Post-offer, the combined holding of foreign parents BASF Societas Europaea and BASF Aktiengesellschaft would have gone up significantly from 52.7 per cent.
BOC India is another example where the MNC has successfully implemented the open offer on the back of a price revision. The foreign parents the BOC Group, BOC Holdings, Linde Holdings, Netherlands acquired a total of 1.32 crore shares, or (15.5 per cent of the company’s equity) against the offer of 1.7 crore shares or 20 per cent equity. Initially priced at Rs 165, the offer was subsequently raised to Rs 200 per share, as intimated to BSE.
The offer remained open between June 11 and 30. The foreign parents now hold 89.5 per cent in the Indian subsidiary, close to the delisting limit of 90 per cent prescribed by SEBI. In the past, MNC parents of firms like Alfa Laval, Esab India, i-flex Solutions and Bosch India raised stakes substantially after hiking the offer price.
Some MNCs operating in India may want to eventually delist shares from Indian bourses by hiking the promoter’s stake through open offers or by adopting the reverse book-building route, according to investment bankers. However, not many have been able to obtain a positive response with some of them making repeated efforts in the past. Bankers say it is generally difficult to get a good response in a bullish market as shareholder expectation is high.
However, with the downturn in the market since early this year, there has been a steady flow of open and reverse book-building offers in the market. MNCs are apparently taking advantage of beaten down valuations to raise promoter stake with or without any intention to delist shares from bourses.