A large part of open offer monies may go to facilitate management changes
The market for management control has kicked off in India. The latest Economic Survey shows that, in the first seven months of the current fiscal, open offers were made to the tune of Rs 4,940 crore.
This represents a jump of 36.82 per cent over the amount for the entire 2001-02, when the quantum of open offers amounted to Rs 3,610 crore.
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A large part of the increase in open offers seems to be going to facilitate management changes. The money to facilitate this has increased from Rs 1,756 crore for 2001-02 to Rs 3,609 crore in April-October 2002.
However, the money that promoters have pumped in to increase their shareholdings stands at Rs 1,331 crore for April-December 2002 compared with Rs 1,815 crore for 2001-02. A sum of Rs 1,372 crore had flown into the stock markets in the form of open offers for the financial year 2002.
The increase in the amounts involved in open offers seems to have been facilitated by the steps taken by the Securities and Exchange Board of India (Sebi) towards improving transparency and efficiency of the markets. The Sebi has introduced a new Takeover Code in September 2002, taking into account the long standing demands of the players in the market, the Survey says. The measures are expected to reduce the conflicts between the acquiring and the target company, and increase the mergers and takeover activities.
Another interesting feature, according to the Survey, is the increase in the amount involved in open offers has coincided with the slowdown in the Indian economy. The economy has been in the dumps in the past two years with the growth rate falling to 5.4 per cent for the financial year 2002.
This was in contrast to the high growth rates of over 6 per cent in the preceding years. Now, with the slowdown, valuations of companies are quoting at prices much below what the fundamentals would dictate. There exists an opportunity here for stronger firms to take over the smaller ones. This could be one reason for the increase in the amounts involved in open offers in the country.