HUL open offer ends today, may be subscribed 50%: Sources

Unilever's USD 5 billion open offer to increase stake in Hindustan Unilever to upto 75 percent will close today. Sources indicate that the open offer may be subscribed only 50 percent, reports CNBC-TV18's Pragya Bharadwaj.

It will be interesting to see the final figures because right from the beginning sources were indicating that the verdict is split as far as the Unilever open offer is concerned. At best the response would be lukewarm. Subscription figure could reach only half way mark of 50 percent.
It is a voluntary open offer for 22.5 percent stake at an open offer price of Rs 600 per share taking the entire deal size to a massive Rs 29,200 crore. Unilever had chosen not to revise the price upwards calling the final open offer price fair and reasonable.
The entire success of the Unilever open offer lies in the hands of the foreign institutional investors (FIIs) who hold 22.1 percent stake. In fact the institutional holding of the entire free-float is substantially higher. Institutions hold almost 30 percent in the open offer of which FIIs hold 22.1 percent stake and domestic institutional investors (DIIs) close to an 8 percent in the company.
There are top six institutional holders names like Aberdeen, LIC and Oppenheimer or Virtus Emerging Markets Fund. Aberdeen holds close to 5 percent, LIC holds approximately 3.5 percent and both have chosen to sit out of the open offer calling the open offer price not attractive enough and not at a significant premium to the stock's trading price of Rs 587.40.
The reason for the lack of appetite for the open offer is the fact that the stock since the open offer announcement is trading very close to the final price and there could be capital gains tax involved. It is much easier for shareholders to just sell the shares in an open market transaction and not avoid any capital gains tax except the short-term gains. This is due to the fact that this is an off-market transaction and because of indexation, it would attract tax gains of almost 20 percent which is not working out in the favour of the open offer.
The final open offer price is just at 3.5 percent premium to the 52-week high of October 2012 after which the growth started flowing down and concerns built up.
The entire analyst community believes investors should sell. It boils down to the time horizon of the investors, the long-term investors seem to be sitting out of the open offer believing that the stock has given a return of 18 percent on a compound annual growth rate (CAGR) basis for the last five years up until October 2012 since when the commentary on the slow down picked up pace. As things stabilize, the company would be back on track to deliver that kind of growth.
CLSA says even in case of an acceptance ratio of 77 percent the stock would not trade above the Rs 572 per share. The July Futures of the company up until the end of June were trading at Rs 560-570 and therefore, that is where the street is expecting the stock to correct.
Analysts believe the stock will correct all the way down to the Rs 470-480 level once the open offer announcement settles down. The valuations of Rs 600 is extremely expensive, the stock trades at 36 times FY14 EPS and 33 times FY15 EPS. Anybody with a short-term horizon for them made sense to tenor in the shares.