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Alagappan Arunachalam

SHAREHOLDERS of Ondeo Nalco India may tender their holding to the open offer made by Suez of France, as the price appears attractive. The open offer is at Rs 594.85 (this includes Rs 271.85 towards interest to compensate for a delay).

There has been a sharp spurt in the stock price since December as investors have sought to capitalise on the arbitrage opportunity. This was accompanied by a rise in volumes. The stock now trades at Rs 567. The spurt in price appears linked only to the open offer as there has been no noticeable improvement in the fundamentals over the past few years; it also does not appear to be linked to growth prospects. In this backdrop, prices could weaken in the post-open offer period and shareholders can accept the offer. The open offer has been made by the France-based Suez to comply with the SEBI's Takeover Regulations.

Suez had acquired the global operations of Nalco Company, US, in the late 1990s. In the process, it acquired an 80 per cent stake in Ondeo Nalco India, formerly Nalco Chemicals. Subsequently, Suez sold its stake in Nalco Company to a group of strategic financial investors. A consortium of investment firms — Blackstone, Apollo and Goldman Sachs — owns Nalco Company now. The open offer is to acquire 10 lakh shares, which account for 20 per cent of Ondeo's equity. The shares acquired through this open offer will be tendered by Suez to the consortium at $6.22 per share. The strategic financial investors will not be required to make an open offer. Interestingly, these investors had made an open offer in November 2003. But it did not get SEBI clearance following complaints by investors. SEBI had to direct the Suez group to make an open offer as there was a change in management when Suez became the owner of the 80 per cent stake.

If the shares held by the public are tendered, the stock will automatically be delisted. The stock is listed on the BSE and the Kolkata Stock Exchange.

Ondeo Nalco makes specialty chemicals and also supplies and erects water treatment equipment. The company is the only major manufacturer of water treatment chemicals in India. This business contributes 52 per cent of its revenues; industrial additives and oilfield chemicals account for 38 per cent and rest is contributed by formulation chemicals. Specialty chemical is a low-volume, high-margin business targeted at niche markets.

The major consuming sectors of water treatment chemicals are engineering, chemicals, pharmaceuticals, food processing and paper industries. The company's prospects are insulated from any downturn in a particular industry. It has the option of selling to its parent, but the exports have shown a decreasing trend over the past three years. The performance over the past few years has shown a sluggish trend in revenues and earnings. The open offer, which opened on February 12, closes on March 3. The manager to the offer is JM Morgan Stanley and the registrar is Intime Spectrum Registry.

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