Mr Kalanithi Maran's open-offer to the shareholders of SpiceJet at Rs 57.76 a share in June last year met with poor response, with the offer mopping up scarcely any shares.

But that has been a missed opportunity for investors who held the stock. The SpiceJet stock is at Rs 25.10 now, down 57 per cent from the open offer price.

Investors in Everonn Education who gave SKIL Infrastructure's open offer a miss are also in the same situation. Everonn Education trades at Rs 280, down 52 per cent from the open offer price. JMC Projects, Areva T&D, Ispat Industries (now JSW Ispat) are a few others where investors not tendering shares in the open offer have lost out.

Of the 98 open-offers in 2010, 81 received poor response with acquirers in these cases managing to mop up less than half of the shares they targeted for. Yet 60 per cent of the stocks where investors rejected open offers are now ruling below the open offer price.

Secondary market price

One key reason for the poor response to most of the open-offers of last year seemed to be the stock's secondary market price catching up with the offer price, in the run up to the open offer.

SpiceJet, JMC Projects and Areva T&D are cases in point here. SpiceJet's open-offer was announced at Rs 57.76 when the stock was quoting at Rs 57 in the secondary market (in the pre-offer period it even rallied to Rs 77).

The acquirers of Areva T&D garnered 1.22 per cent of the outstanding shares through the open offer. The open offer price was just 2.8 per cent higher than the market price when the offer was in force.

The offer for the shares of JMC Projects garnered 6.35 per cent of the outstanding stock. Kalpataru Power, the acquirer in the instant case, made the offer at only a 3 per cent premium to the stock's then market price.

Tax effect

The unfavourable tax treatment of shares tendered in open offers may also have played a role in retail investors not participating in these offers. For shares tendered in the open offer, short term capital gains is taxed at 10 to 30 per cent depending on the individual's tax slab and long term capital gains is taxed at 20 or 10 per cent, depending on whether investors claim the indexation benefit.

However, for shares sold in the secondary market long term capital gains are completely tax exempt while short term capital gains are taxed at a flat 15 per cent.

It is also relatively easier to put a transaction through the secondary market rather than go through the process of tendering it under an ‘open offer'.

The above trends suggest that investors may have been better off selling their holdings in the secondary market during the offer. However, only a small set of investors may have taken advantage of this opportunity.

The number of shares held by retail investors in Everonn Education fell only by 6 per cent over the September-December 2010 quarter — a three month period during which the offer was completed. In the case of Areva T&D, the decline was marginally better at 11 per cent.

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