MNCs drive open offers to a six-year high

Shareholders tendered shares worth Rs 21,038 crore

The amount realised through open offers made in the first half of the financial year is the highest in six years, driven largely by multinational corporations (MNCs), which took advantage of lower valuations to consolidate their holdings.

An open offer is a process by which shareholders can tender their shares to a promoter or large stakeholder who offers a price for doing so to consolidate his holdings.

Sudhir Bassi, executive director, Khaitan & Co, suggested valuations were key to the spike in such offers. “MNCs have looked at opportunities for consolidating their holding in a growth market like India. However, the high valuation of Indian markets was a deterrent. As the Indian markets were trading at lower valuations in the first half of FY14, MNCs believed it was an appropriate time. This was one reason for large voluntary open offers like Hindustan Unilever’s (HUL’s),” he said.

Atul Mehra, managing director, investment banking, at JM Financial, said the currency value also played a role. “The weakness in the currency made it attractive for MNCs to pick up shares, since it was cheaper for them than before. Also, Indian stocks were trading at lower multiples; additionally the sentiment was not very conducive, which meant shareholders were happy to part with their shares,” he said.

As many as 46 companies made open offers worth Rs 37,460 crore in the six-month period, according to statistics compiled by Prime Database. This is up several times over the Rs 1,721 crore worth of open offers in the same period last year.

Pranav Haldea, managing director of Prime, said this was largely because of the Rs 29,220-crore offer of Unilever Plc for HUL, 78 per cent of the value of the total offers.

Seven of the offers (worth Rs 31,189 crore) were made for consolidation of holdings. The remainder of the 39 offers were made under the category of substantial acquisition/change in control of management. Foreign entities made 11 offers, while domestic ones made 35. The second largest offer, after Unilever, was made by Relay BV. It made a Rs 5,441-crore open offer for the shares of United Spirits. Shareholders chose to tender shares for more than half  the offers, with the value of such transactions at Rs 21,038 crore or 56 per cent of the offer amount made, compared to Rs 578 crore in the same period last year. HUL’s open offer saw an acceptance rate of 65 per cent, said Prime.

Pavan Kumar Vijay, managing director at financial consultancy firm Corporate Professionals, said a lower cost of borrowing for MNCs contributed to the increase in activity. “The earnings yield for a lot of MNCs is lower than the cost of capital for many companies, which makes open offers an attractive option for them,” he said.

More open offers might be in the pipeline, according to an official at a domestic investment broking entity.

“Some promoters are looking to consolidate their holdings through open offers,” said the official.