The Hindu Business Line : MICO — Open offer: Accept

Motor Industries Company (MICO) shareholders can accept the offer from Robert Bosch GmbH to buy their shares through an open offer. The revised offer price of Rs 4,600 per share appears attractive and shareholders can use the opportunity to book profits on their holdings. The possibility of a sharp appreciation in the market price of the stock from the offer price does not appear high. Besides, Bosch’s long-term game plan seems to be to buy out the public shareholders in MICO fully and take the company private.

The offer

Germany’s Robert Bosch, which holds a 60.55 per cent stake in MICO, seeks to increase its holdings to a little over 80 per cent through the current open offer to the common shareholders of the company. Bosch plans to grow its business in the country not just in the diesel fuel injection equipment segment but also in other areas such as power tools, machines and tools and car audio equipment. The German company has said that it is also seeking to develop synergies with the Indian business.

Simply put, all this means that Bosch may be more comfortable with transfer of proprietary technology and products when it has total ownership over the company. The intention appears clear: Buy out the public shareholders in MICO and take the company private over a period of time.

Robert Bosch is not listed in Germany and it only stands to reason that it would like its subsidiary in one of the fastest growing automotive markets in the world to be unlisted too. Bosch’s strategy is also clear from the terms of the open offer — it is not conditional upon minimum level of acceptance by shareholders. This only means that the German major is willing to mop up whatever quantum from the public shareholding that comes its way. The odds on another round of open offer or a buyback — there have been three buybacks since 2000 that helped Bosch increase its stake from 51 to 60.55 per cent — in the foreseeable future appears quite high.

In this backdrop, the role of institutional shareholders assumes importance. Institutions — banks, mutual funds and FIIs — hold about 30 per cent of MICO with the public shareholders holding just below 10 per cent.

The support of the institutions is crucial if Bosch is to succeed in taking MICO private which is why it acceded to their demand for an increase in the current open offer price from the originally pegged Rs 4,000 to Rs 4,600 per share.

Assuming most of the institutions decide to offload their stake in the open offer now, the public shareholders could be disadvantaged if they decide to stay invested as they will be reduced to a minority. Institutional shareholders always have a more powerful voice than individuals. Therefore, it may be better for retail shareholders to accept the offer from Bosch now.

However, second-guessing institutional shareholders on their strategy could be difficult. Chances are that they may decide to hold on to their stakes for a still better price to be secured from MICO in which case those retail shareholders who sell now may be disadvantaged. This is a risk that shareholders should take note of while making their decision.

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