After stock rally, Polaris Consulting delisting offer may not go through

After the recent rally in Polaris, discovered price may be much higher than floor price

The delisting proposal for Polaris Consulting & Services by Virtusa Consulting Services, which owns 74.22 per cent in the company, is unlikely to go through as the stock price has surged over 60 per cent since its price before the delisting announcement. 

The stock of Polaris, which was trading at around Rs 242 apiece prior to the voluntary delisting announcement on October 26, 2017, is currently trading at Rs 401 on the BSE.

According to the company filings, the floor price for the delisting offer is Rs 232.37 per equity share of Polaris, which is much lower than the current market price.

When contacted, Virtusa CFO Ranjan Kalia said, "We would like to obtain full ownership of Polaris, which will, in turn, provide us enhanced operational flexibility." The company says delisting would also provide an exit opportunity to Polaris shareholders, especially given low liquidity.

The delisting price is determined by the reverse book build process, which typically is at a premium to the floor price, and Virtusa will have the option to accept or reject the discovered price.

"We will accept the discovered price if it is reasonable and makes sense to Virtusa and its shareholders financially. The recent run-up in the stock price has raised concerns for us," Kalia added.

Dinkar Shanbhag, the head of institutional equity at Mumbai-based broking firm Lotus Global Equities, said: "The trend is to have a premium of 40 to 50 per cent above the floor price. Over the years, we have seen select delisting offers being rejected by the acquirer as investors tried to stretch the delisting offer price to an extent which the acquirer felt was unreasonable."

In March 2016, the Nasdaq-listed Virtusa had acquired about 53 per cent stake in Polaris from certain promoter entities and other shareholders. Virtusa had then completed the mandatory open offer in April 2016 at Rs 220.73 per share.