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| There is something absorbing about Orissa Sponge |
| Arun Kumar / New Delhi Mar 09, 2009, 00:34 IST |
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Share price vaults, but question mark on growth.
The loss-making Orissa Sponge Iron and Steel Ltd is caught in the middle of a unique takeover bid, as three Delhi-based companies are fiercely fighting to grab it.
The share price has already gained over seven times in the past three months, currently trading at Rs 396, as against Rs 56 on December 8, 2008 What started on a low note in December 2008, when cash-starved Unitech decided to divest its holding (around 20 per cent stake, including warrants) in Orissa Sponge, is now entangled in a prolonged battle, as two sides — Bhushan Steel and Monnet Ispat — vie for an over 26 per cent stake.
Irrespective of the outcome of the open offers made, if two warring sides are going to control over 26 per cent each, it would be an uphill task to run the company. With 26 per cent of the voting rights, each of them will have the right to veto any special resolution. This means the company cannot raise any capital through the equity route, unless both agree. Therefore, growth will be a question mark.
Bhushan Steel, controlled by Neeraj Singhal, acquired Unitech’s holding to increase its stake to 14.85 per cent in January. At this, his estranged brother, Sanjay Singhal, through the firm he controls, Bhushan Power, made an open offer at Rs 300 per share on February 7, for a 26 per cent stake in Orissa Sponge.
With a floating stock of less than 20 per cent, it would be difficult for Sanjay to get control over the company, said a banker. "The intent of the open offer was to increase the acquisition cost for Bhushan Steel," a banker involved said.
However, the open offer set the ball rolling for other suitors. Under the takeover code, suitors needed to make their competitive bids before February 28 to remain in the race.
Unitech had been in the market for a couple of months, discussing with various suitors, including Bhushan Steel, Monnet Ispat and others. Bhushan Steel’s acquisition of Unitech’s holding was with the full knowledge of P K Mohanty, the promoter and founding chairman of Orissa Sponge, sources said.
However, in a bid to fetch a better price, Mohanty simultaneously started discussion with Sandeep Jajodia, the promoter of Monnet Ispat. On February 25, Mohanty entered into a binding agreement with Jajodia. Under the agreement, Jajodia acquired a 14.8 per cent stake at Rs 283 per share, which will be increased to 27 per cent shortly. Monnet made an open offer at Rs 310 per share.
On February 28, Bhushan Steel made an open offer at Rs 330 per share. Between March 3 and 4, it acquired an additional 4.74 per cent stake from the open market at Rs 342.85 and Rs 359.95 per share. Since the market price is much above the open offer price, Bhushan Steel is now forced to revise the open offer price, for which it has some more time.
With no sign of compromise between the suitors, the company share price is expected to maintain its upward journey in the short term.
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