The Hindu Business Line : Wimco: Accept

SHAREHOLDERS can accept the open offer being made by Swedish Match, to acquire 20 per cent of the public shareholding of Wimco Ltd. Swedish Match also reserves the right to acquire an additional 6 per cent stake through the open offer, mopping up the entire public shareholding of Wimco.

Wimco has been reporting net losses over the past two years. Over the past four years, it has steadily lost market share in its core business to rivals such as ITC.

The price of Rs 59.24 (including an interest component of Rs 24.24) is attractive in the light of the company's insipid fundamentals. All shareholders are eligible to receive this price, including interest. Shares tendered to this offer are likely to be accepted in full, as the public shareholding in Wimco is at about 24 per cent. Swedish Match is making this open offer at SEBI's direction, pursuant to its acquisition of a 74 per cent stake in Wimco from its earlier promoters — the Jatia group — in 2000.

Though this open offer is being made by Swedish Match, the latter's stake in Wimco has been transferred to Russell Credit — a subsidiary of ITC — in July this year. Given its substantial presence in the matches business, the acquisition by ITC is positive for Wimco. The latter could reap substantial synergies with its own matchsticks business. Wimco's brands could also piggyback on ITC's extensive distribution network. With a stranglehold over the organised matchsticks market, ITC could also have the flexibility to hike selling prices.

This suggests that Wimco's fundamentals could stage a recovery under the new management, over a period of time. But it may not be advisable for Wimco shareholders to hold on to the stock now in expectation of a possible turnaround. ITC has already announced plans to delist the stock after its takeover is complete. ITC's subsidiary — Russell Credit — is likely to make a follow-up open offer to mop up any remaining shareholding in Wimco, once the current mandatory offer is through. The second open offer may happen through the reverse book-building process, for which the floor price is likely to be Rs 42 per share.

However, holding on to the stock in the hope of securing a better price from the reverse book-building process may be fraught with risk. For one, if the present offer is reasonably successful, it will substantially shrink the trading volumes in the stock, making an exit through the market difficult.

Second, given that it already controls a 76 per cent stake in Wimco, ITC is unlikely to pay a substantial premium to mop up the remaining shareholding under the reverse book-building process.

If the company is merged with ITC, the swap ratio is unlikely to be favourable to Wimco, given its weak financial position. It may be best to use the attractive exit opportunity provided by this open offer to liquidate holdings in the Wimco stock.

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