Acceptance ratio for HUL offer may be over 50%

Large investors may not tender shares in the open offer due to tax concerns

What are the chances of your Hindustan Unilever Limited (HUL) shares being accepted in the coming open offer? A Business Standard analysis shows the odds are more than 50 per cent.

European consumer goods major Unilever, which holds 52.48 per cent stake in its Indian arm, today announced an open offer to buy an additional 22.5 per cent stake at Rs 600 a share, valuing the total purchases at abut Rs 29,220 crore. The current public holding in HUL stands at 47.52 per cent. So, in theory, the acceptance ratio (the proportion of shares tendered by a shareholder to those accepted by the acquirer) is just 47 per cent. Shareholders should keep this ratio in mind, as companies announcing open offers accept shares only on a proportionate basis.

Analysts, however, say the acceptance ratio for the HUL offer could be much higher, as investors, especially large ones such as LIC, could avoid tendering their shares in the open offer due to tax concerns. “Many investors would not like to tender their shares in the open offer, as they would be taxed. As the difference between the current market price and the open offer price after today’s run-up isn’t very high, they might as well sell in the secondary market and avoid tax,” said Arun Kejriwal, director, Kejriwal Research and Investment Services.

Shares tendered in open offer attract taxes, as these are not routed through stock exchanges. The income derived from such transactions is considered to be ‘other income’ and is taxed according to the slab. However, shares tendered in open offers do not attract securities transaction tax, levied at 0.1 per cent for delivery-based trades.

“If investors are in a taxation bracket of 15-20 per cent, after tax, I do not think it will be very well off,” said Raamdeo Agrawal, director & co-founder, Motilal Oswal Financial Services. “Hence, it is better to hold on, if your post-tax return from the sale is not significantly better,” he added.

As of March, HUL had 337,447 shareholders with investments of less than Rs 1,00,000, accounting for 13.63 per cent of the company’s total shareholding. Another 37 individual shareholders had investments of more than Rs 1,00,000.

Kejriwal said investors could also make use of the ‘arbitrage strategy’ to benefit from the open offer. He added one should consider buying from the open market and tender shares in the market, as there was a spread of Rs 20 to be made.

Today, the HUL stock rallied 17.3 per cent, or Rs 86, to close at Rs 583.6 on BSE. During intra-day trade, the shares surged 20 per cent to an all-time high of Rs 597 apiece. The HUL stock is widely held, owned by about 250 mutual funds, about 150 banks and financial institutions and about 600 foreign institutional investors. LIC is the biggest institutional shareholder, with a holding of 3.22 per cent.