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Poor sentiment for the scrip led to the price falling from Rs 110 in April 1995, to about Rs 60 in April 1996, and then to Rs 30 in April 1997, before sliding further to Rs 24 in February 1998.

Rumours abounded about the firm being targeted for a takeover due to cheap valuations. Operators capitalisedon this and speculative buying saw the stock move up to the current level of Rs 70. This made a takeover attempt more difficult as the cost of acquisition became higher. However, cosnidering the current valuation of Rs 140 per share by the statutory auditors, Videocon still was an attractive target.

 

The promoters could have protected their own interests by making an open offer fora 20 per cent stake but this would entail a huge outlfow. The Dhoots would have to shell out Rs 180 crore to pick up a 20 per stake of Videocon's Rs 63.42 crore equity. Instead, by making an offer for 2 per cent their outflow will be only Rs 18 crore.

At one-tenth the cost, the promoters will still succeed in increasing the cost of an acquisition attempt. the share price is bound to shoot up further, and reach somewhere near the level of Rs 120 in the enar future. By announcing an offer for two per cent year year, the promoters are holding out a `windfall' carrot every year, assuming that valuations keep improving. Thus, investor interest in the stock will be kept alive.

The promoters too have benefited from the deal. Their 42 per cent stake (along with associates), worth about Rs 67 crore in February 1998, has increased to about Rs 187 crore at the current price. If the price moves up to Rs 120, the promoters shareholding will be worth Rs 320 crore, nearly 5 times its value two months ago.

Public shareholding the company has been pegged at 31 per cent. Thus, only a small proportion of shareholders will be successful in availing of the promoter's offer of Rs 140. A more sensible strategy for the small investor would be to wait for the price to reach a level of Rs 120-130 and disinvest in the secondary market itself.