Date:22/08/2005 URL: http://www.thehindubusinessline.com/2005/08/22/stories/2005082202520100.htm

Back High market prices affect open offers of MNCs

Virendra Verma

Mumbai , Aug. 21

SEVERAL multinational companies (MNCs) have not been able to increase their stake through open offers and reverse book-building processes, since the market price is much higher than the offer price.

In the case of certain offers that are yet to open for public participation, the market prices of the companies' shares have already risen over the offer prices right after the offer announcements. MNCs have come out with offers to buy shares from their existing shareholders either to de-list their securities or to make a mandatory open offers to abide by SEBI takeover regulations.

Experts point out several reasons for the rise in the market price above the offer price. A higher price is possible at a later date for companies, which want to de-list their securities from the stock exchanges, the experts said. Some said that this is a good opportunity for traders to make a fast buck. "People buy shares at a price higher than the offer price from the market on the expectation that the parent company will increase the offer price to de-list securities," said Mr V. K. Sharma, Head of Research, Anagram Stock Broking.

Mr Sharma said that when the parent company increases its stake due to a mandatory open offer, more commitment is expected from the parent (so that the management becomes stronger.) Mr Arun Kejriwal of KRIS Research said that when the offer is made, the public feels that the price should be higher than what is offered. Another reason cited by Mr Kejriwal is that the punter (trader) becomes active to make a fast buck with the stock.

Companies whose market prices are higher than the offer prices include i-flex Solutions, for which Oracle has announced to make a mandatory open offer at Rs 882.62. The company's stock price is Rs 990. For Ingersoll-Rand (India), the parent announced an open offer of Rs 325 per share to the shareholders to de-list the securities. The stock price jumped after the announcement and is now trading at Rs 339.

As for Flextronics Software System, the parent wants to increase its stake and de-list the securities. The stock trades at Rs 657 compared to the maximum price of Rs 575, which the parent has stated to pay.

Recently, SKF India's parent also announced delisting of the securities through the reverse book-building process. But this could not be carried out, as the price discovered through the process was much higher than what SKF's parent was willing to pay.

Areva T&DSA made an offer to acquire a 20 per cent stake in Alstom Ltd at Rs 75. The Alstom shares tendered by shareholders were negligible, as the stock price ruled above the offer price. Currently, the stock trades at Rs 255 with most of the rise in the stock price coming after the offer. Burren Energy made an offer at Rs 92.41 for Hindustan Oil Exploration. The stock now trades at Rs 182.