The Hindu Business Line : Bayer India Diagnostics: Reject

Investors can reject the open offer being made by Siemens AG to acquire an additional 20 per cent stake in Bayer Diagnostics India (Bayer). The open offer is at Rs 629.45; the Bayer stock is trading at about Rs 695.

Background

The open offer is the consequence of a move at the global level, with Siemens AG deciding to buy out the diagnostics business of Bayer AG.

In India, Siemens has entered into a share purchase agreement with the two outfits — Bayer CropScience in India and Bayer Healthcare of the US — to acquire their total holdings of 51 per cent in Bayer.

This has necessitated an open offer for an additional 20 per cent.

Rationale

Bayer operates in the medical diagnostics space, and sells reagents and equipment in the immunology, critical care and the haematology therapy areas. It also handles the servicing of such equipment. Though its earnings growth over the past two years has been quite muted, the business, as such, holds potential.

The space Bayer operates in may not face much competition from domestic players, given the level of sophistication it requires ; it is an arena dominated by global players. With hospital chains likely to expand the scope of their operations, expect this development to impact positively on the demand for Bayer's products.

Also, with several independent diagnostic centres springing up, Bayer should see a pick-up in demand. Government-sponsored health programmes targeted at the rural population could also act as a booster.

Bayer has disposed off its diabetic care business to its group company for about Rs 25 crore. The amount isto be distributed to shareholders as one-time dividend. Reckoned on an equity base of Rs 1.56 crore, investors would stand to receive about Rs 160 per share; participating in the open offer would mean that they would forego a significant one-time receipt.

At the offer price, the stock would be trading at a multiple of about 15 times its expected per-share earnings, assuming modest growth in earnings.

The return on shareholder funds at 16 per cent may not be in the top-tier league, but it is not unreasonable either.

Offer details: The offer is to acquire 3.13-lakh shares at a price of Rs 629.45. J P Morgan India is the manager to the offer. It closes on September 14.