Why Total SA’s decision to first launch an open offer to buy 37.4% in Adani Gas has a nice ring to it

P. Manoj Mumbai | Updated on October 14, 2019 Published on October 14, 2019

Prudent way to avoid excess holding, maintaining joint control in a balanced way

After agreeing to hold joint control of Adani Gas with a 37.4 per cent stake apiece, Total SA and the Adani family decided that the French oil and gas giant would approach the public shareholders first to mop up whatever it can from the market to reach its target.

Based on how much the minority shareholders tender during the open offer priced at ₹149.63 a share, Total will buy the remaining stake from the Adani family at the same price.

The Adani family currently holds 74.8 percent stake in Adani Gas while public shareholders own the balance stake of 25.2 per cent.

At the conclusion of the deal, the Adani family and Total SA shareholders will hold 37.4 per cent each and the public shareholders will hold the remaining 25.2 per cent.

This means that whatever Total buys from the public will be reinstated by the Adani family from its excess stake (beyond the 37.4 per cent it is supposed to hold) through an offer for sale (OFS) to maintain the public share holding at 25.2 per cent.

“It’s probably a nice way of structuring the transaction so that everybody who is getting a shareholding in it maintains whatever shareholding they want. Once you go to the public and do a buyback offer at a particular price and people want to sell, then you have to buy. It’s a commitment that you have made,” said an investment banker dealing with mergers and acquisitions.

“On the other hand, if first the Adani family were to sell 30 per cent to Total, and Total then goes for the open offer as per SEBI rules to buy a further 20 per cent from the public and the whole public sells to you, then Total will be stuck with a much larger percentage,” he said.

It may look a little difficult for the two parties to show joint control if suppose Adani offloads 30 per cent, and then you only want 7.4 per cent from the market to reach 37.4 per cent, but the market actually gives you 21 per cent, then the balance shifts from joint control to majority ownership for Total.

“So, if the objective is to have joint control of Adani Gas, it may be a beautiful way of doing it whereby you first go to the market and find out how much you are getting, and if the market gives you 15 per cent, then you go back to the drawing board and see how you can balance the shareholding between Adani and yourself and maintain the public shareholding at 25.2 per cent,” he added.

Launching an open offer first will also help decide the price, because typically when promoters want to dilute their stake first, they start by asking for a price which is more than the floor price that the market gives, said another investment banker.

“So, it appears as a complex but smart way of figuring out how much the public is ready to give and then rebalance the equation between the partners,” he stated.

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Published on October 14, 2019
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