Thursday, July 12, 2012

Clarity on media reports of Open offer in Andhra Pradesh Paper Mill

Today there were media reports in many newspapers including economictimes that verdict on open offer of AP Paper is expected soon. If the verdict by Securities Appelette Tibunal (SAT) is against "International Paper Company", (Current promoter of AP Paper), they may have to have to pay an offer price above 600/-.

Please read that news here :

Reading the new, a common investor will infer that there will be an offer in the company above Rs 600/- well above yesterdays closing price of around 330/-. If the offer is for 26% then the acceptance ratio will be 100% , and so the price of AP Paper has almost moved up. Also the company is expected to declare Q1 results of FY12 tomorrow, further raising the expectation of open offer.

Please understand, that the open offer of the company @544.20/- per share is over in 2011. At that point of time they bought shares from promoters @ Rs 544.20 /- +  Rs 130.73 as non compete fees. Non compete fees to promoters is perfectly legal but SEBI discovered that they also paid that price to certain Non - Promoter. Based on these understanding SEBI gave a ruling to increase the offer price to Rs 674.93.

International Paper went to SAT against SEBI verdict, and in its interim order SAT directed company to proceed with open offer at the price of Rs 544.20 and also directed it to deposit Rs 130.73 per share in escrow account.

So the offer is already over, more over if the SAT verdict  is in favour of minority shareholders, the shareholders who have sucessfully tendered their shares in open offer will get a windfall of Rs 130.73 per share.

There is nothing to cheer for current shareholder and please do not get swayed by hopes of open offer.

There can be de listing offer in the company, but looking at the financial reports of the company, I have reservation that International paper will come with offer or maybe not at this price. Also there is no compulsion on the part of promoter to de-list as they have shareholding of 75%, which is the threshold limit.

I suggest caution in trading these stock as hopes of open offer after SAT verdict is a myth.

Monday, July 2, 2012

Special Situation in Ivrcl Assets and Holdings

IVRCL Assets and Holdings is a subsidiary of IVRCL Limited, holding 75% in the company. The company is on the verge of being merged with IVRCL Limited.

The process of merger has reached a final stage, All approval from shareholders and creditors have come, the resolution is passed in Court convened EOGM, the only approval pending in merger is the approval from Hyderabad high court. 

The hearing in Hyderabad high court is postponed several times in last 3 months, In fact today also the hearing is there for filing of final copies. I expect the approval from high court in some days or may be today also. The delay in filing in courts are norm in this country. I don't expect any problem in getting the approval.

Is there an opportunity in merger ?

a) The traded price of IVRCL AH is Rs 42/-.
b) The price of IVRCL is Rs 53.60 /- in derivatives July futures contract.
c) The merger ratio of the company is 5 shares of IVRCL ltd for every 6 shares of IVRCL AH.

So effectively if I buy six shares @ Rs 42/- , I will get 5 shares of IVRCL for which the cost would be Rs 50.40. Hence I can buy 4800 shares of IVRCL Ah @ 42/- and sell 1 lot (4000 shares) IVRCL July futures @ 53.60.

Effectively, Cost of IVRCL will be 50.40, and I will be able to sell a 53.60. The difference is more than 6% waiting to be earned.

I expect that final approval will come before the end of this month and so the return seems compelling. moreover if it is delayed by some more days, you can rollover your short position, where you will be able to cover the cost of carry.

Are there any pitfall or precautions in the deal ?

a) There is a remote possibility of the merger not accepted by the court (very remote possibility, but it exist technically)
b) IVRCL AH is illiquid stock and it is in trade to trade segment.
c) The spread may become larger if there is delay in getting the approval.

But overall, It is a good bet where probability of higher returns are very high.
This is not a recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions