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Last Updated : Apr 26, 2013 04:10 PM IST | Source: CNBC-TV18

Ashish Chugh's view on Saint-Gobain, Fresenius delisting

Investment analyst and author of Hidden Gems Ashish Chugh shares his view on two buzzing stocks: Saint-Gobain and Fresenius Kabi.


Investment analyst and author of Hidden Gems Ashish Chugh shares his view on two delisting stocks: Saint-Gobain and Fresenius Kabi.

Also Read: Here's what to expect from ICICI Bank Q4 earnings

Below is the verbatim transcript of Ashish Chugh's interview on CNBC-TV18


Q: Would it be disappointing the way the merger of Saint-Gobain Sekurit has been structured with Grindwell Norton (GNO) for Saint-Gobain investors? How will you approach the situation and the sequence of events that has led up to this?


A: It would indeed be disappointing for the shareholders of Saint-Gobain. After the delisting of Alfa Laval and Atlas Copco, the equation which emerged was that any MNC with close to 75 percent holding is equal to guaranteed profits. With the failed delisting of companies like Indo Tech Transformers, APW President, Ricoh India and Saint-Gobain, I think that myth has now been broken. Saint-Gobain had earlier come out with delisting offer in the month of June 2012 and the floor price was set at about Rs 31. The discovered price in that deal was about Rs 90 which was rejected by the company because they did not want to pay such a high price given the fundamentals of the company.


The company has now proposed a merger of Saint-Gobain with GNO and the merger ratio has been fixed as one share of GNO for every 17 shares of Saint-Gobain. Given the current price of about Rs 250-255 for GNO, this gives every share of Saint-Gobain a value of about Rs 15 per share. Most share holders of Saint-Gobain are feeling that they are being punished now for the reason that they did not accept the delisting terms in the month of June and were trying to be excessively greedy.


There is no free lunch in the market and therefore, one has to look at various scenarios while investing in these kind of companies. So, this kind of a scenario may also emerge. We have seen companies like Atlas Copco and Alfa Laval, where shareholders made exorbitant returns but then this is market and you have to live with these kind of cases as well.


Q: What have you made of the sequence of events in Fresenius Kabi Oncology, the offer for sale, now the delisting? How would you ask investors to approach that situation now?


A: Fresenius Kabi is an MNC where promoters were holding about 90 percent. As per Securities and Exchange Board of India (Sebi) guidelines, promoters either needed to bring their stake down to below 75 percent or delist the company.


If we look at the sequence of events here, the stock of Fresenius Kabi doubled from about Rs 85 in December 2011 to about Rs 170 by April 2012 only on the hopes of delisting. Then promoters opted for offer-for-sale (OFS) instead of delisting and the stock fell to about Rs 80. The OFS took place at Rs 80 but a large chunk of this OFS was subscribed by four entities. These four entities subscribed close to 7 percent out of the total 9 percent offered in the OFS. There is nothing illegal about it and I am not accusing any of the entities here, but look at what the company is doing now.


The company has now come out with a voluntary delisting offer with a floor price of about Rs 130 per share. For delisting of the company to go through as per Sebi guidelines, two conditions have to be essentially met. One is the post offer stake of the promoters should be more than 90 percent and second is that they have to acquire at least 50 percent of the non promoter share holding which is a published share holding.

With the current float of 19 percent, the company now needs only 9.5 percent stake to delist and keeping in mind that it just did an OFS of 9 percent to cut their stake from 90 percent to 81 percent. It is easy for a company to accumulate 9.5 percent after giving 9 percent stake in OFS which has been subscribed by select entities and then it was to garner 5 percent when the public float was 10 percent. There is nothing unethical about it, but the spirit of the law has been ignored though it has been followed in letter. In case this delisting goes through, it will provide a perfect precedence to some of the other promoters on how to delist the company at a throwaway price.



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First Published on Apr 26, 2013 01:14 pm
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