Alfa Laval of Sweden, the parent of Alfa Laval (India) has declared its intention of de-listing it from Indian bourses. Indian economy’s long term growth prospect have lured lot many MNCs to look at taking the companies private since they do not want to share their future plans with the public and especially their competitors. Most of these MNCs are sitting on tons of cash and nowhere to deploy except the emerging markets.
Alfa Laval is one of the best companies in its play area and I have had long experience of dealing with them as buyer of capital equipments for my old employers. First rate management, great equipment and excellent service. Great ROE.
Currently Alfa Laval AB holds 16,120,281 shares amounting to 88.77% ( as per June 2011 shareholding pattern) while the balance 2,030,093 shares are widely dispersed with 9851 individuals holding 1,865,720. No one holds 1% of the equity of company unlike Blue Dart with R Damani & Co hold more than 5% shares. Only 4 individuals hold about 43,000 shares and 280 body corporates holding little less than 76,000 shares and few NRIs holding about 44000 shares.
For delisting the shares, during the reverse book building process, enough shareholders need to tender their shares to ensure that
a. the tendered shares together with the current holding of promoters crosses 90%
b. tendered shares constitute more than 50% of remaining shareholders
This stipulation means that at-least 1,015,047 shares need to be tendered.
Now this is a fairly tall order but doable.
I heard on TV someone doubting if this de-listing can actually take place given this widely held nature of the shareholding and I believe that it is possible if promoters are genuinely interested in it.
What can happen during the intervening period of approval by shareholders and others and the actual reverse book building is that some players enter the picture and accumulate shares from the market. This can be also be a managed affair with a deal being struck by the merchant banker with friendly parties such as mutual funds etc. who can then tender their holding at a pre-negotiated price.
Generally the merchant bankers launch a fairly aggressive call out operations during the buy-back/reverse book building process and I have received many such calls in the past asking me to participate in these activities. Also merchant bankers can personally approach indviduals to offload by offering them a good price and picking up their shares.
De-listing price: Current market price convergence at 2250 seem to suggest that promoters may announce a floor price of about 2000-2100 and hopefully gather enough shares to ensure that the highest price at which max shares are tendered is around 2400-2500. It can also give enough time to friendlies to gather shares from the market by ensuring that certain despondency is generated in the individual shareholders by depressing the price in the market.
What can an individual investor who is already a shareholder do: I think you should sit tight and wait for the process to begin and tender your shares at a price of 2500 during the reverse book building. I am going to do this.
Someone who is not a shareholder should not enter the market at these prices. If the delisting process does not go through for some reason then the price can fall back to 1600-1700 levels fairly quickly. Your best bet would be to pick up the shares once the de-listing price has been discovered and accepted by promoters.
After the successful close of reverse book building and acceptance of the price by the promoters, it takes approx 4-6 weeks for the shares to delist. In this time the scrip usually trades 2.5-3% below the delisting price ( sometimes if you are lucky you can get even 5% lower ). You can buy during this intervening period and tender your shares to the promoters ( they will send you the necessary docs for the same ). Total time from the purchase of shares during the intervening period and your realising your money is approximately 2 months. So while 2% gain ( after brokerages and demat expenses) may not be much, remember that this is virtually risk free and part of your fixed income allocation can be deployed here.
I do this all the time and find it to be a fairly profitable trade.