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Aarati Krishnan

Risk-averse: Sell in market Others: Accept

THE price of Rs 124 per share being offered by Coromandel Fertilisers to mop up an additional 20 per cent of the public shareholding in Godavari Fertilisers (GFL), appears quite attractive in the light of GFL's current financial position and its immediate prospects.

Though a turnaround may be possible under the new management, this would require a rejigging of GFL's operations and manufacturing facilities, which may take some time.

Given the attractive open offer price, liquidating all of their holdings through the open offer, would theoretically be the ideal course for GFL shareholders.

But investors need to factor in the possibility that only part of the holdings tendered to the offer are likely to be accepted.

The present non-promoter shareholding in GFL stands at around 34.9 per cent, but the open offer is only for a 20 per cent stake. Assuming all the non-promoter shareholders tender to the offer, this means that for every 100 shares tendered, an investor may be able to sell only 57 shares through the open offer, at the price of Rs.124 (This would net proceeds of Rs 7,068).

The residual holdings of the GFL stock may suffer a sharp erosion in value, once the open offer comes to a close.

The GFL stock price is currently at Rs 103 and may drop sharply to align with fundamentals, after closure of the offer.

Investors who are unwilling to take this chance, can liquidate their entire holdings in GFL at the current market prices. This will net a certain sum of Rs 10,300 for every 100 shares held. There are just two risks associated with this strategy.

One, if the Godavari Fertilisers stock stays above Rs 75 much after the closure of the open offer, tendering through the open offer may have earned you higher returns.

Second, if a significant number of the shareholders do not tender to the open offer, the acceptance level for the open offer may turn out to be higher. Both these events appear unlikely to occur under current circumstances.

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