The Hindu Business Line : Takeovers fail to sizzle, unlike rest of the market

According to SEBI statistics, the value of `open offers' made under the takeover regulations dropped by over 50 per cent to Rs 1,200 crore in the calendar year 2004 from Rs 2,600 crore in the previous year.

THE `takeover' market didn't quite boom in 2004 unlike other forms of primary market activity in the country.

According to the statistics provided by the Securities and Exchange Board of India (SEBI), the value of `open offers' made under the takeover regulations dropped by over 50 per cent to Rs 1,200 crore in the calendar year 2004 (from January to November) from Rs 2,600 crore in the previous year. The number of open offers has also dropped to 50 in 2004 from 68 in the previous year.

There were a few high profile open offers in 2004.

The ones that instantly come to mind are the offers by Singapore-headquartered Flextronics for Hughes Software and US-based Avaya Inc for Tata Telecom.

In contrast, in the first half of 2003, there were quite a few prominent offers such as Reliance's offer for BSES, Grasim's offer for Larsen & Toubro, CDC's offer in Punjab Tractors and the delisting offers by multinationals such as Atlas Copco.

What are the reasons for the tepid interest for takeovers in the year gone by compared to 2003?

Two factors stand out.

One, the takeover market was inversely related to the state of the broad markets (represented by the Sensex and Nifty).

Between January and May 2003, when the broad markets declined by 6 per cent, over 80 per cent (or Rs 2,100 crore) of the value of open offers were put through for 2003.

Since June 2003, the markets entered a bullish phase, which was sustained right through that year, with the Sensex logging returns of over 80 per cent.

In 2004, the markets did not record the sizzling returns posted in 2003, but the Sensex went past the 6,000-point mark in January and November.

And this wasafter recovering from a decline to 4,700 points on May 17.

The mid-cap stock basket, represented by the CNX Midcap 200 Index, also ended the year with an appreciation of 45 per cent.

The second factor appears to be the tightening of the delisting guidelines by SEBI in early 2003.

Going by the SEBI data, the value of open offers by multinational (MNC) and Indian promoters seeking to increase their equity stake in companies (also described as `consolidation of holdings') declined sharply to Rs 120 crore in 2004 from Rs 1,100 crore in the previous year.

Out of Rs 1,100 crore, almost 90 per cent of the value of open offers was made between January and March 2003.

In the last phase of the delisting trend that started in 2001, there was a spate of open offers by MNC parents in their Indian subsidiaries/associates to reach the delisting threshold of 90 per cent.

They were using the bearish state of the markets to good effect. In the first quarter of 2003, MNCs such as Syngenta India, Atlas Copco and Hindustan Powerplus made open offers to enhance their equity stake to 100 per cent.

These were akin to the delisting offers by other MNCs such as Reckitt Benckiser, Kodak India, Wartsila India and Otis Elevators in 2001 and 2002.

Once the stiff delisting guidelines came into effect, however, this trend dwindled in 2004.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
US equity fund buys 33.3 pc in Indiabulls arm for Rs 87.6 cr

This year, investors want equity in insurance

Mills blame speculators for spurt in sugar prices

`Spot audits' by US textile buyers begin as quotas go

India Inc upbeat on economy: CII poll

Takeovers fail to sizzle, unlike rest of the market

Contributions to The Hindu Relief Fund