The Hindu Business Line : Premium for Ranbaxy buy among the highest

BL Research Bureau The 30 per cent premium over the ruling market price that Daiichi Sankyo is paying to buy out the promoters of Ranbaxy Laboratories, may be among the highest paid for such a takeover of an Indian company over the past two years.

Acquirers have usually paid a premium of 10-20 per cent over the prevailing market price of the target companies, in recent acquisitions where promoters have shed a majority of their stake.

How much more

There are not too many instances of Indian promoters parting with their control over a key listed company. Recent instances of Indian promoters cashing out on a big chunk of their holdings include the complete exit of the Burmans from Dabur Pharma and Aztec Software’s promoters selling out their stake to Mindtree Consulting. The buyers paid a 20 per cent premium over market price in Dabur Pharma’s case.

But the premium was insignificant in the case of Aztec Software. Vedanta’s acquisition of Mitsui’s 51 per cent stake in Sesa Goa, the Kingfisher group’s acquisition of Deccan Aviation, Grasim’s exit from Shree Digvijay Cement and private-equity major Blackstone’s buyout of a 50 per cent stake in Gokaldas Exports were prominent deals in 2007 that saw promoters cashing in on their stakes in listed companies.

The year 2006 was notable for cement major Holcim’s acquisition of the 14.7 per cent promoter stake in Gujarat Ambuja Cements (now Ambuja Cements) and Mylan’s acquisition of a 51 per cent stake in Matrix Laboratories.

The premium to the prevailing market price, for these deals, was on an average 20 per cent. Notably, both the pharmaceutical companies Dabur Pharma and Matrix Laboratories saw the buyer pay only a 10 per cent premium to the prevailing market price. Holcim’s buyout of the promoter’s stake in Gujarat Ambuja is also memorable. While Gujarat Ambuja’s promoters received a 20 per cent premium for a “non-compete fee”, the open offer to shareholders was made at the prevailing market price. This trend suggests that shareholders have indeed got a meaty premium for their shares in Ranbaxy.

Takeover buzz effect

A point worth noting, however, is that in a number of instances of promoters cashing out, the stock price of the target company has run up ahead of the acquisition announcement on “takeover buzz”. This has automatically reduced the gap or premium between the offer price and the ruling market price at the time of the big announcement.

There also haven’t been too many instances where promoters have completely sold out their stake in the target company. In the case of Deccan Aviation, Matrix Labs and Gokaldas Exports, for instance, promoters ceded control, but held on to a smaller stake in their companies.