Second open offer speculation pushes Great Offshore shares

Great Offshore shares surged 14.3 per cent to Rs 568 on Thursday, on speculation that Bharati Shipyard would come with a second open offer, under Section 12 of the takeover code that allows management control.

The competitive open offers made by Bharati and its rival, ABG Shipyard, got over on Tuesday. Bharati received 10.2 million shares or the equivalent of a 27.5 per cent stake against its offer to acquire a 20 per cent stake at Rs 590 a share. But, Bharati’s offer was under Section 10 of the takeover code which allows a buyout for strategic purpose, but does not give the right to take management control.

“This has given speculation in the market that Bharati will come with a second open offer to take the management control,” said an analyst with a domestic brokerage, who did not wish to be quoted. “We do not rule out the possibility,” said P C Kapoor, managing director, Bharati Shipyard. “But, at the moment, we do not have any such plan,” he said.

The company plans to take a legal view after the open offer shares are transferred to its account. A 26 per cent stake in a company enables the holder to appoint directors on the board which run the company. After the successful open offer, Bharati has 42.48 per cent stake in Great Offshore and it would like to appoint directors on the latter’s board.

According to a legal expert, who did not wish to be quoted, the Companies Act does not define management control. However, Section 189 (2) mentions that for a special resolution to be passed at the general meeting of shareholders, votes cast in favour by members must be not less than three times the number of votes against the resolution.

So, to block a special resolution to appoint directors on the board, there should be 76 per cent against the resolution. Once Bharati has a 26 per cent stake, it can easily pass a special resolution that allows appointment of directors on the board. Hence, 26 per cent stake ownership decides management control.

Bharati Shipyard plans to take the legal view on this once the open offer shares are transferred to its account. Bharati Shipyard’s stock gained 2.1 per cent to Rs 221.9 on Thursday.

ABG has yet not disclosed the number of shares tendered to it. However, it is expected to have received only a marginal number, as it had offered to buy at a lower price of Rs 520 a share for an additional 33.8 per cent stake.