Sep 18, 2013, 01.59 PM IST | Source: CNBC-TV18

Bayer Crop buyback: Makes more sense to sell in open market

The buyback price, which was announced in July this year, disappointed the market, which was expecting a higher price

Nigel D Souza

Research Analyst, CNBC-TV18

More about the Expert...

Shares of Bayer Cropscience are up around 2 percent to Rs 1554 ahead of the buyback offer for 7 percent of the equity at Rs 1580 per share. But investors looking to cash in on their holdings in Bayer would be better off selling them in the open market rather than tendering the shares to the company, reports CNBC-TV18's Nigel Dsouza.

That is because the acceptance ratio will be a measly 24 percent (only 24 of every 100 shares submitted will be accepted), assuming that all non-promoters participate in the open offer.

But this ratio could be even lower, considering that the promoters may have to participate in the buyback, failing which its stake will exceed 75 percent after the buyback.

Promoters currently own 71.1 percent in the company, and this could rise to over 76 percent assuming they don't participate in the buyback.
But they may not have a choice, since they will be forced to make an offer to delist unless they lower their stake to 75 percent.

Then there is the tax angle as well; investors will be subject to a 10 percent long term capital gains tax if they chose the tender route. This does not make a sense when the gap between the market price and the tender price is less than 2 percent at the moment.

The buyback price, which was announced in July this year, disappointed the market, which was expecting a higher price

The stock is up 62 percent over the last one year, but still trades at a slight discount to its peers like Rallis India .

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