Tata Motors DVR hits record high, zooms 18% on delisting plan

The board of the automotive major approved a scheme whereby 7 ordinary shares of the company will be issued for every 10 A-shares held, and all its outstanding A-shares will stand cancelled.

Shares of Tata Motors DVR (Differential Voting Rights) hit a record high of Rs 440, as they zoomed 18 per cent on the BSE in Wednesday’s intra-day trade after Tata Motors on Tuesday announced the termination of its DVR or A-share programme. The stock price of DVR surpassed its previous high of Rs 387 touched on September 12, 2014.

At 09:20 AM; Tata Motors DVR quoted 14 per cent higher at Rs 424.95, as compared to 0.28 per cent rise in the S&P BSE Sensex. The average trading volumes at the counter jumped over four-fold so far. A combined 10.2 million shares changed hands on the NSE and BSE.

The board of the automotive major approved a scheme whereby seven (7) ordinary shares of the company will be issued for every ten (10) A-shares held, and all its outstanding A-shares will stand cancelled. It’s a non-cash transaction with applicable withholding taxes in the hands of investors.

The proposal, subject to shareholders’ approval, is aimed at simplification and consolidation of its capital structure. Earlier this year, Tata Motors delisted its American depositary shares listed on the New York Stock Exchange.

“The ‘A’ ordinary shares currently trade at about a 43 per cent discount to the ordinary shares. The capital reduction consideration implies a 23 per cent premium on the previous day’s closing share price of ‘A’ ordinary shares, translating into a 30 per cent discount over the ordinary share price and significantly below its historical averages. The scheme will lead to a reduction in the outstanding equity shares by 4.2 per cent, making it value-accretive for all shareholders,” said Tata Motors in a press release.

Share swap deal is in favour of Tata Motors – DVR shareholders with fair value of the same now pegged at 30 per cent discount to prevailing price of Tata Motors ordinary shares vs. the prevailing discount of 40 per cent plus. At the current market price of Tata Motors, the fair value of Tata Motors – DVR is derived as around Rs 450/share, a substantial premium of around 20 per cent to Monday’s closing price, ICICI Securities said in a note.

The brokerage firm expected Tata Motors – DVR to open Gap up in morning trade today. For Tata Motors it is further simplification of shareholding structure and is EPS accretive in nature. It’s a win-win for both Tata Motors Ordinary Shareholders as well as Tata Motors – DVR shareholders, it added.