Piramal Healthcare ( PHC ) is folding in the New Entity Research Business of Piramal Lifesciences ( PLS ) into itself and is issuing 1 shares of itself for every 4 shares of PLS. No shares will be issued for its own stake in PLS. Once this takes effect there will be a dilution of approximately 4% in the earnings for PHC.
Towards the fag-end of today’s trade ( Oct 11,2011), PHC fell off to 348 from 352 while there was strong buying interest in PLS at 88 and above and it closed at 89.
The process of hiving off of the business from PLS has been on since May and the final clearance from Bomaby High is expected any day.
At the current prices, if the residual business of PLS is valued at even Rs 5 per share then the equivalent price for PHC works out to 336 ( 89-5)*4. At zero residual value ( an unlikely event ) the e.v is 356.
If one gets an opportunity to short PHC at a price above 356, I would think that trader is likely to make money. If the residual value is assessed by the market at more Rs 3 then even after transaction charges there is profit to be made.
I think the whole process should be over within the FNO expiry of November month.
Disclosure: I am long PLS and short PHC for now more than a month.
Pl. take whatever I say with a pinch of salt and do your own research before taking any action. It is your money and that should be very dear to you.