The next few months will witness an increase in open offers by multinational companies (MNCs) operating in India as the markets remain depressed.
"The current market condition has given MNCs the right opportunity to go for open offers. As the bourses are at a low as compared to last year, the price offered by MNCs to shareholders -- which is usually at a premium to the ruling market price -- makes a good value proposition for them now," said Ravi Kapoor, senior vice-president, investment banking, DSP Merrill Lynch.
"MNCs are also looking at open offers from a strategy point of view as they want to have a greater control and achieve consolidation in the different markets where they operate," Kapoor said.
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DSP Merrill Lynch has managed the largest number of open offers in 2000-01, with six deals amounting to Rs 533 crore. Out of this, three were from MNCs worth Rs 281 crore.
Some of the recent open offers by MNCs managed by DSP Merrill Lynch are that of Royal Philips Electronics NV for the shareholders of Punjab Anand Lamp Industries and United Technologies Corporation for Otis Elevators Company (India).
The liberalisation in foreign investment norms and the change in the mindset of institutional investors have helped to increase the number of open offers, according to analysts.
"Open offers provide liquidity and the exit route to most of the investors, and the country in turn gets foreign direct investment. Sometimes, the overseas acquisition of the MNC parent triggers off an open offer to the domestic shareholders, as per the regulations in India. The recent example for this is the open offer which had been triggered off in India as a result of Unilever's buyout of Best Foods USA," Kapoor said.
"On other hand, buy-backs are a different story. It is not to be seen as a tool to increase promoters' shareholding. As a result, not only the promoters, but all the residual shareholders get a chance to consolidate their shareholdings. The key driver for buy-back is surplus cash available with the company, which can be returned to the shareholders," he said.
"Buy-back is done when the management needs to give a signal to the market that the stock is undervalued," added other merchant bankers.