German engineering giant Siemens will fork out about Rs 6,215 crore to raise its holding in its Indian subsidiary to 75%. It currently holds 55.18% in Siemens Ltd and will thus have to acquire 19.82% more.
The open offer for 6.68 crore shares at Rs 930 a share will open on March 25 and close on April 13.
In an interview with CNBC-TV18, Jangannathan Thunuguntla of SMC Global Securities said the price offered by the Siemens management was too good. “The management has been extremely shareholder friendly to that extent by giving such a lucrative price.”
Below is a verbatim transcript of the interview. Also watch the video.
Q: Just start off by telling us about the open offer price whether you think it is good and what kind of advice would you give shareholders? Do you think one should in?
A: The price that was offered by management was too good. The management has been extremely shareholder friendly to that extent by giving such a lucrative price. The promoters are definitely trying to move up from Rs 55 to Rs 75 to consolidate their positions so, eventually may be to see going forward what is the strategy. But definitely the price they offered was very convincing and at that price, the PE multiple was about 40-41—that is very exciting price.
About open offer success, 55% currently is owned by promoters, 45% is outside. Out of that 45%, about 14% is held by LIC alone, so there is about 31% with the remaining shareholders. Out of this 20% open offer, naturally, LIC holds the key—whether they are going to participate in the open offer or not. If they participate, they acceptance ratio will be about 44%. If they don’t participate, it will be as high as 63%. That is very good for minority shareholders. If somebody is already a shareholder of Siemens, definitely they can wait for the actual open offer, so that they can get the Rs 930 a share price instead of selling in the open market.
But, if somebody wants to enter now, to take the advantage of the open offer arbitrage, probably, whatever the cream advantage is there has been already filled in yesterday with 17-18% jump. But, still, there is a little bit hope on the basis of that. And if the LIC participates, then the breakeven price works out to about Rs 794. That means you will be making profit as long as the share price remains above Rs 794. If the LIC doesn’t participate, your breakeven price remains about Rs 724, that is, you will be making profit as long as the share price remains above Rs 724. Overall, I think it is a fantastic opportunity for minority shareholders who are already shareholders of Siemens.
Q: A shareholder who has the share and who doesn’t have the share will have two other doubts as well. When company come upto 75%, there is always the fear and the attraction that they would go for delisting. Should one consider that at all? In which case, you can even do better than perhaps Rs 930 a share that the company is offering. For a non-shareholder, for a person who is not yet in Siemens, is this a good time at all or do you think that the valuations have gotten stretched at this point of time—that it makes arrival like ABB a better stock to enter?
A: As far as the first question regarding the delisting is considered, one observation is that the document, whatever they have published, indicating that probably they have the intention of continuing the listing. Of course, nobody will say openly about the delisting so early. So if we assume there is no delisting, then that is one side of the story. If we assume that the company eventually is planning for delisting, then as rightly said, at the time of reverse book building, which is the only mode that is available for doing the delisting, for the shareholders, probably, there is a good chance they will get much higher side than Rs 930. However, that strategy can be made, only after seeing whether or not LIC participates in the open offer.
For example, if LIC exits, as part of open offer itself, then, the minority shareholders have much stronger say at the time of reverse book building. But, if the LIC doesn’t participate, if they stay invested, then the reverse book building will be entirely at the mercy of LIC.
As you would appreciate, as part of the delisting book building, 50% of the book respond should come. Then LIC holds the key. I believe LIC won’t participate in the open offer. My hunch is this time in the open offer they may not tender all their shares. Even if they probably tender some of their shares, they may tender, but not all. In that context, at the time of delisting, their role becomes additional importance.
As far as the second question that you raised about if you are not a shareholder, what you should do—if you are not a shareholder, if you want to get in now for open offer arbitrate, still you can get in, in the anticipation that LIC doesn’t participate in the open offer, your acceptance ratio will be higher, so you will get your Rs 930.
But the cream advantage was definitely as yesterday, which got filled in with Rs 17-18 jump. To that extent probably one can better put typical 4-5% kind of open offer arbitrate risk just not more.