Multinational companies (MNCs) wishing to delist are finding the going tough, due to a sharp rise in the share prices of their Indian subsidiaries.
In the past month, three companies — Goodyear India, Sulzer and Micro Inks — announced an intention to delist, only to find share prices zoom, making the exercise much more expensive.
Analysts say it is not unusual to see punters ramping up the share price of listed arms of multinationals soon after a delisting is announced, in the hope that the offer price would be raised.
More so as, in many instances, multinationals had to actually revise the offer price upwards. For example, MHM Holdings, the parent of Micro Inks, had announced in February that it would delist by acquiring 25 per cent of the latter’s shares. It had indicated an offer price of Rs 550 and a floor price of Rs 478. The parent finally had to offer a 16 per cent premium to the offer price.
| PRICE PRESSURES | ||||
| Company (in Rs) | Floor price | Indicative offer price | Market price* | Exit price |
| 3 February, 2010# | ||||
| Micro Inks | 477.94 | 550.00 | 625.95 | 640 |
| 4 March, 2010# | ||||
| Sulzer India | Not disclosed | 870.00 | 1,184.95 | N/A |
| * Current market price as on March 15 #Date of delisting announcement N/A: Delisting process yet to start (Source: BSE) | ||||
Similarly, Swiss firm Sulzer wants to delist subsidiary Sulzer India at Rs 870. But, the stock is now trading at Rs 1,189. This is Sulzer's second attempt to delist, the first being in 2007. That offer was withdrawn because the share price rose past the offer price.
Goodyear India’s parent, Good Year Tire & Rubber Company, has also announced delisting plans, but is yet to announce the offer price. That has not stopped the surge in the share price. Goodyear India jumped 26.6 per cent after the delisting was announced on February 9.
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Some of the multinationals were successful in delisting their Indian subsidiaries from stock exchanges last year, such as Tudor India, Avery India and Lotte India.
Some shareholders say the record showed companies that delisted had then reported better performance post-delisting. For instance, Reckitt Benkiser’s, delisted in 2002, saw net profit increase to Rs 278 crore at the end of December 2008, compared to Rs 16.67 core in December 2002.
Similarly Cadbury’s India, which was delisted in 2003, saw net profit rise to Rs 165 crore in December 2008 from Rs 66.9 crore in December 2002.
This also means a problem for delisting schemes, as shareholders don’t wish to sell.
“I have seen companies show faster growth after delisting,” said Janak Mathuradas, a seasoned investor in such companies. Mathuradas, who still hold shares in many of the delisted companies, says he will not sell shares in companies which plans to delist in future.
He has shares in both Sulzer India and Goodyear India.
Market players also say there is a problem with small shareholders.
“It is difficult to delist the companies under the new norms, as small shareholders generally do not participate in the reverse book building process,” says Girish Nadkarni, executive director, Avendus Capital.
In reverse book building shareholders bid at a price, above the floor, at which they want to sell the shares and the final price is determined based on the bids received. In book building, in the case of initial public offerings or follow-on offers, investors bid between the price band specified.
Under the new guidelines for delisting, promoter shareholding has to reach 90 per cent of the equity or 50 per cent of the offer size, whichever is higher. This means if the promoter holding is 88 per cent in a company, and it plans to delist, the minimum shareholding has to be 94 per cent (half of the other 12 per cent).
But, if the promoter holding reaches 92 per cent, the shares cannot be delisted. Earlier, if the public float fell below 10 per cent, the promoters were able to delist the shares from the stock exchanges.
Most multinationals want to delist for two reasons. One, they are sitting on a huge pile of cash. Two, delisting helps them do away with the administrative process of complying with regulatory requirements for listed companies.
However, investment bankers associated with companies which have gone for delisting in the past say they look out for large shareholders like mutual funds and insurance companies to make the delisting successful.
“To achieve the target, we go to the institutional shareholders, as it is difficult to interact with a large number of small shareholders,” said an official with an investment banking firm, which has adopted this strategy to make the delisting successful. “If you can manage institutional investors, smaller shareholders easily surrender the share after delisting,” he says.