The proposal to take Vedanta private by billionaire Anil Agarwal-led promoter firm Vedanta Resources has run into rough weather with governance firm Stakeholders Empowerment Services (SES) questioning the fairness of pricing.
“It can be said that offer is not serious, as expecting that investors will lap up the offer at a price which is less than 50 per cent of 52-week high, almost 45 per cent of book value (31st March 2019), a dividend yield of 20 per cent plus when interest rates are historic low with a chance of revival, amounts to questioning the wisdom of investors. Finally, is the price fair? The unequivocal answer is not at all,” SES analysts Varun Krishnan and JN Gupta have said in a note.
On Tuesday, Vedanta announced that the promoters plan to offer Rs 87.5 per share for 49 per cent stake held by public shareholders. The offer price was fixed at a 9.9 per cent premium to Monday’s closing price of Rs 79. Currently, the stock trades at Rs 90, above the issue price.
“For it is universally known and it is the opinion of all experts that these are uncertain times and present prices are not reflective of long-term value, therefore the intent appears to be that promoters want to take advantage of present market condition and acquire 100 per cent of the company at a current low price,” SES said.
The corporate governance watchdog has urged the Vedanta board to debate the fairness of the price and other options before the shareholders.
“The promoters are obviously putting their money because they believe in business and future prospects. It is a great opportunity and right occasion for the board to live up to its duty and act in the interest of investors,” the analyst duo have said.
Among the options proposed by SES is ‘de-subsidiarising’ Hindustan Zinc (HZL) to benefit all the shareholders.
“Investors will have choice to choose to remain invested in one, both or none. For Rs 90 that they have for Vedanta share, they will have one Vedanta share plus 0.74 shares of HZL. HZL will have tremendous opportunity of price discovery as shareholding pattern of HZL would change drastically,” it said.
Market players said the price of Rs 87.5 set by the promoters at best can act as a floor price. The delisting of a stock has to take place through the reverse book building method, where shareholders have the flexibility to command a higher price. Analysts say if the promoters are serious about delisting, the final price will have to be substantially higher.