Patni: Good chance to exit

Though the floor price is lower than the market price, analysts say the final offer could be 25-40 per cent higher.

Even as the broader markets are struggling to stay in the green, the share price of Patni Computer Systems has been rising. Since November 9, the stock has risen 19 per cent to Rs 427. On Wednesday, iGate offered to delist Patni from stock exchanges. In May, the former acquired a majority stake in Patni at Rs 503.50 a share.

Currently, it holds 82 per cent in the company (84.19 per cent ex-ADRs) and has announced a floor price of Rs 357 for acquisition of the residual stake. Though the floor price has come in at a discount to the existing market price, analysts say the final price would be close to what iGate paid for Patni.

What does the delisting announcement mean for investors? Will they get the option of exiting at a price close to that paid by iGate or will it be less than that? After the reverse book building process is over, analysts say the final price could be Rs 415-470, a premium of 25-40 per cent to the floor price.

Explains Jagannadham Thunuguntla, strategist and head (research), SMC Global Securities: “Even as the company has fixed the floor price at Rs 357, it will be highly surprising if the final delisting price, according to reverse book building, comes to less than Rs 503.50 a share (as given in the original acquisition price).” In that case, iGate will have to acquire at least eight per cent of the residual stake for a delisting.

On the other hand, others believe the upside is capped on the stock, given the run-up of 19 per cent. Pankaj Kapoor, director (equity research-IT services), Standard Chartered Securities, sees the final price in the band of Rs 415-470. He explains: “This is based on a 25-42 per cent premium to floor price seen in past delisting transactions in the IT/BPO space.”

Analysts are also looking at the line of credit iGate has arranged to fund the acquisition. The company has a war chest of $215 million. According to Shashi Bhusan of Prabhudas Lilladher, if the entire fund (at the prevailing exchange rate) is used to acquire all shares outstanding, the average share price of acquisition could touch Rs 408 a share.

“However, we continue to see no improvement in the company’s fundamentals,” he adds.

HOW THEY STACK UP
Target	Floor price(Rs)	Exit  price(Rs)	Premium  to floor(%)	Delisting date
E-Serve International	735	975	33	Dec 15, ‘04
Flextronics Software Sys.	579	725	25	Feb 10, ‘06
iGate Global Solutions	289	410	42	Feb 4, ‘08
PSI Data Systems	45	60	32	Apr 6, ‘09
Source: Standard Chartered Research