DELISTING – THE MAGIC WORD ON DALAL STREET

by Ruma Dubey, 19/9/2011, source: forward mail

Alfa Laval is amongst the biggest gainers today. It hit a new 52-week high at Rs.2318.50 in the early morning trades itself and by afternoon, hit another new high at Rs.2357.80. The stock has hit the roof after the company stated that it is seeking voluntary delisting from the BSE and the NSE following the promoter company’s decision to acquire shares constituting 11.23% of its equity capital. The Board is scheduled to meet today, 19th September to consider this proposal. Currently, the Swedish parent holds 88.77% stake in the company.

So is that the magic word? “Delisting?” In an otherwise lacklustre market, this stock stands lit up like a Christmas tree. Why do companies seek delisting? Yes, there is the stipulation of getting the promoters stake down to 75%. All these companies seeking delisting have one thing in common and that is the majority stake of the promoters. Companies can reduce their stakes to confirm to the norm but why the need to delist?

There are umpteen number of inane reasons which come up, justifying the reasons for delisting – removes need to disclose financials, no need to pay heed to the interests of the minority shareholders, can go with rising or reducing capital or even mergers and acquisitions without having to worry about so many approvals. A high promoters stake means low floating stock and even for the minority shareholders, this means lower liquidity. Thus for the stock exchanges, it means it now has lower number of listed stocks with low liquidity. But when companies like Alfa Laval or Blue Dart or UTV delists, it is a disadvantage to some extent as we are losing quality stocks.

In simple layman terms, delisting means removing the shares from trading on the stock exchanges. This delisting could be voluntary or involuntary. Voluntary delisting happens when promoters or the acquirers get the approval of the shareholders by a special resolution to delist itself. As per the norms, if public float goes down to 10% or below, the acquirer then has the option to buy the outstanding shares from the remaining shareholders at the discovered offer price. This gives an exit route for the investors but when it is delisting at the behest of the stock exchange, due to violation of norms, then investors are stuck. Offer price has the minimum base price or floor price, based on 26 weeks average traded price, without a maximum price. But companies delisting themselves from regional stock exchanges do not have to provide any exit prices for investors as the stock continue to remain listed in the BSE and NSE. It is only when it is delisted from these two exchanges that exit route is offered.

Given below is a list of MNCs which are also likely delisting candidates. These companies have to either reduce their stake to 75% but if they do not want to do that, might go for delisting.

Astrazeneca Pharma 90%

Lotte India Corporation 93.09%

Fresnius Kabi 90%

BOC India 89.48%

Gillette India 88.76%

Elantas Beck India 88.55%

Kennametal India 88.16%

Saint-Gobain Sekurit India 85.77%

Fairfield Atlas 83.91%

Ineos ABS (India) 83.33%

Honeywell Automation 81.24%

Blue Dart Express 81.03%

Oracle Financial Ser Soft 80.42%

Novartis India 76.42%

Timken India 80.02%

Sharp India 80%

Alfa Laval (India) 88.77%

3M India 76%

GMM Pfaudler 75.62%

Foseco India , as at 30th June 2010, promoters had a stake of 86.48% and they have now, as at 30th June 2011, reduced it to 75%. Thus it is one company which chose to stay put. Astrazeneca, stake remains high at 90% (Q1FY11) but in Q1FY10, it was higher at 97.91%. It remains a delisting candidate. Saint Gobain has already stated that it is looking at delisting. Atlas Copco is one company which has already delisted, and its promoters stake was high at 83.77%.

Suashish Diamonds is not a MNC but it is sure to go for delisting. Promoters’ stake in the company currently stands at 89.43%. The company had contemplated delisting in Oct 2009 but it did not go through after Ashish Goenka, the promoter and acquirer decided not to accept the discovered price (being the price at which the maximum number of shares was tendered) of Rs.320 per share established by the book building process on the BSE.

Kennametal was historic in the sense that its promoters sought delisting but the shareholders rejected the company’s share buyback proposal, underscoring growing shareholder activism in the country. The company planned to acquire the shares through purchase of 11.84% public stake.

Novartis has stated it has no plans to delist and that maybe true as its holding is not alarmingly high at 76.42%. Sulzer India on the other hand, delisted it shares by buying back 11.4% stake.

UTV Software is an interesting case as though promoters stake is well below the stipulated 75% at 70.26%, Walt Disney is acquiring the company and the stock is getting delisted.

Thus we never know, which company where could decide to get delisted. You get an exit route at a price higher than the market value, grab it and get out!

***

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