Depressed stock prices, especially in economy-driven sectors like engineering and fast moving consumer goods, have encouraged a flood of open offers and buybacks. Most offers for buy-outs were made by parent multinational companies (MNCs).
On the other hand, buybacks were more widely distributed between domestic and foreign companies. The list for open offers included companies like Cadbury India, Philips India, Wartsila India, Hoganas India, Carrier Aircon, Sandvik Asia, etc. Most of these companies were 51 per cent subsidiaries of their respective parents. Still, it didn't cause too much of a change in market outlook or in perceiving MNC stocks.
One compelling reason for open offers that filtered through was that MNC parents believed that their interests were often divergent with the interests of other shareholders, primarily the public. Another reason cited by market participants was the need to disclose an increasing number of company details, which companies were a little hesitant to do.
Although most of the offers are still in their offer period, some companies that managed to successfully buy out the public shareholding include Philips and Carrier, taking the parent's holding beyond 90 per cent - the crucial mark required to delist the stock.
Other companies that stepped on the buyback track included Britannia, Raymond and Bombay Dyeing. The question arises: why did companies decide to take such a step? Among other reasons, some market insiders alluded to a perception of increased competition being a precursor to falling valuations in future.
For many others, it was simply the fact of having too much cash on their hands. For instance, Raymond realised approximately Rs 1000 crore from divesting their steel and cement businesses, which contributed to a temporary upmove on the stock.
However, if the changes suggested by the P N Bhagwati committee to the Takeover Code are accepted, it might just dampen the ardour towards open offers. For instance, for companies without an identifiable promoter group, the minimum open offer amount will have to be for 51 per cent instead of the current 20 per cent.
Similarly, if preferential offers are brought under the purview of the takeover code, it might force acquirers to reconsider the decision as, given certain conditions, it may involve a payout for acquiring the additional equity.
