The ppt was made by me last year at an investor forum and covered in business standard subsequently
http://www.business-standard.com/india/news/checklist-for-evaluatingdelisting-proposal/454475/
Look forward to your comments and suggestions at ashishkila@gmail.com
2. Acknowledgements….
• Mentors/Friends who have helped shaped my thought process
regarding delisting
▫ Prof. Bakshi
▫ Ankur
▫ Romil
▫ Neeraj
▫ Ninad
▫ Rohit
▫ Ambar
3. Road Map
• What is Delisting
• Why Delisting Now
• Delisting Regulations / Process
• Evaluation of Delisting as an investment opportunity
• Delisting candidates
• Current Delistings going on
• Delisting Idea @ Timken India
4. What is Delisting?
• Permanent removal of securities of a listed company from a stock
exchange.
• As a consequence of delisting, the securities of that company would
no longer be tradable at that stock exchange.
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6. Why Delisting Now
• Most important Reason ….a deadline
▫ The Union Finance Ministry came out with the "minimum public
shareholding guidelines" on June 4, 2010, which were later
revised on August 9, 2010
▫ PSUs are expected to maintain minimum public shareholding of
10 per cent within a period of three years. And, for the private
sector, it shall be 25 per cent over three years.
▫ That is, companies have time till June 3, 2013 to comply with this
requirement.
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7. Why Delisting Now…other reasons
• Lenient FDI norms and removal of sector caps
• No need for funds/capital markets access
• Strategic move for greater independence and lower costs.
• Depressed market conditions.
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8. Types of Delisting
Voluntary
delisting from all Exit opportunity
the exchanges.
Compulsory
Delisting Voluntary
delisting from
Delisting few exchanges
but remains
Voluntary No exit
listed on at least
delisting opportunity
one stock
exchange
having nation
wide terminals
Small Company No Bidding, but
(whether listed exit opportunity
at any of the is there
Exchanges)
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10. Delisting Not Allowed in Following Cases
• Pursuant to a buy back of equity shares by the company;
• Pursuant to a preferential allotment made by the company;
• Unless a period of three years has elapsed since the listing of that
class of equity shares on any recognised stock exchange; or
• If any instruments issued by the company, which are convertible
into the same class of equity shares that are sought to be delisted,
are outstanding.
• No promoter shall directly or indirectly employ the funds of the
company to finance an exit opportunity Home
11. Delisting Process
• Board of Directors approves delisting
• Company seeks shareholder approval for delisting the shares using
postal ballot. Only the public shareholders can participate and votes
in favour of delisting must be atleast two times those against.
• In-principle application to stock exchange for delisting, which will
be disposed off by stock exchange in 30 days
• Competition Commission Approval
• Public Announcement
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12. Competition Commission Approval
• Approval required from 1 June 2011,
• CCI will reply within 180 days of the filing of notice by the
companies.
• Applicable
▫ Either, in India,
the assets > Rs 1000cr or
turnover > Rs 3000 cr;
or
▫ in India or outside India,
Assets > $500m, including at least Rs 500 cr in India, or
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turnover > $1500mn including at least Rs 1500 cr in India
13. Conditions required before making PA
• Receipt of in-principle approval for delisting from the recognised
stock exchange
• Appointment a merchant banker
• Promoter shall open an escrow account and deposit therein the total
estimated amount of consideration calculated on the basis of floor
price and number of equity shares outstanding with public
shareholders
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14. Delisting Offer
• The date of opening of the offer shall not be later than fifty five
working days from the date of the public announcement.
• The offer shall remain open for a minimum period of three working
days and a maximum period of five working days,
• A promoter or a person acting in concert with any of the promoters
shall not make a bid in the offer
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15. Floor Price – frequently traded shares
• Floor price is the minimum price indicated by the promoters, which
they would be ready to pay to the minority, for delisting.
• The floor price shall not be less than the
• average of the weekly high and low of the closing prices of the equity
shares of the company during the
• twenty six weeks or two weeks
• preceding the date on which the recognised stock exchanges were
notified of the board meeting in which the delisting proposal was
considered, whichever is higher Home
16. Floor Price – Infrequently traded shares
e.g. Alfa Laval
• Annualised trading turnover in such shares during last 6 months, is
less than five per cent of the total listed equity shares
• Floor price shall be determined by the promoter and the merchant
banker taking into account the following factors:
• (a) the highest price paid by the promoter for acquisitions, during
last 26 weeks upto the date of the public announcement; and,
• (b) other parameters including return on net worth, book value of
the shares of the company, earning per share, price earning multiple
vis-à-vis the industry average.
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17. Requirements
• In order to delist the company from the exchanges, the promoters
must follow the reverse book building process, at the end of which
they must fulfill two conditions;
• 1. They must hold more than 90% of the shares.
• 2. They must buy out more than 50% of the non promoter
shareholding through the reverse book building route (calculated
before delisting offer)
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18. Indicative Offer Price
• Price indicated by Management as the fair price for the investors to
bid in reverse book building
• The effect is that such price becomes effectively the new floor like in
case of Binani, Atlas Copco etc.
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19. Discovered Price
• The final offer price shall be determined as the price at which the
maximum number of equity shares is tendered by the public
shareholders.
• The promoter may, if he deems fit, fix a higher final price. E.g. Atlas
Copco
• The promoter shall not be bound to accept the equity shares at the
offer price determined by the reverse book building process.
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20. Delisting Process
• The company launches reverse book building to discover the price
at which it can buy the required outstanding shares.
• The company has to make the final application to the stock
exchange within one year of passing of the special resolution thru
postall ballot
• Shares not tendered/accepted in bidding period can be tendered till
atleast one year from the date of delisting
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21. Regulations
• Within eight working days of closure of the offer, the promoter and
the merchant banker shall make a public announcement regarding:-
• (i) the success of the offer alongwith the final price accepted by the
acquirer; or
• (ii) the failure of the offer or
• (iii) rejection
• Final payment or/& return of shares where bids not accepted within
ten working days from the closure of the offer.
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22. Some Important Points
• Bids can be withdrawn or revised upwards only till one day before
the closing date
• Book closes till 5:30-6 pm in the evening, though official time is 3
pm – atlas copco at 3pm was 49.3%
• Price will move closer to the price of delisting price barring interest
rate and transaction costs
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24. Parameters/Risks Involved
• Price Risk
▫ Valuation Comfort
• Deal Risk
▫ Management Quality – MNC Parentage
▫ Cues from Prior Corporate Actions
▫ Health of Parent/ Balance Sheet strength
▫ Incentive to Delist
▫ Floor Price
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25. Parameters/Risks Involved
• Deal Risk (contd)
▫ Shareholding Pattern
Pattern delistable
Some public shareholding should be required eg binani case
Holding cost of >1% shareholders
Insider selling during delisting (e.g. UTV)
• Time Risk
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26. Valuation Comfort
• This is probably the most important parameter to look at. If there is
no valuation comfort and delisting fails, the downside could be very
high.
• Blue Dart – Current P/E is ~40 & P/Sales is >3
• Saint Gobain Sekurit India
▫ Company has just 90 cr capital invested with an annual sale of
<100 cr and hardly any profits to show
27. Management Quality – Seek for cases with MNC
Parentage
• Will the management be fair? Most of them are not. Where the
management quality is extremely questionable, delisting could be a
very unfair affair for the minority. Better to stay away
• Suashish Diamonds – Promoter holding 89.43% - Floor Price 220,
rejected the discovered reverse book building price of Rs. 320 in
May’10, Deutsche is stuck with its >3% stake in co.
• Compact Disk Delisting
▫ 24.7% promoter holding and announcing delisting, ultimately got
shelved off because of HSBC filing debt recovery suit.
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28. 10/12/2011
Cues from Prior History of Corporate Actions
• Management aggressiveness to Delist and indication of premium
they will pay, if they decide to try delisting again
▫ Blue Dart – In 2006, Blue Dart’s promoter didn’t accept the
Reverse Book Building price of 950.
▫ Disa India – In 2007, the discovered price of Rs 2960 was
rejected by the management.
▫ Bosch Chassis – in Mar 2008, management rejected discovered
price of Rs 750 against floor set of 415 Rs. In Aug 2008, it was
successful in delisting at 600 Rs.
29. Prior History of Corporate Actions
• Public/Institutional holders intentions
▫ Kennametal India shareholders rejected the postal ballot
conducted in Jan’11.
▫ AstraZeneca Pharma shareholders rejected the postal ballot
conducted Sep’10.
• Dispersed Shareholding
▫ BOC shareholders didn’t tender the required number of shares in
Jan’11.
▫ Goodyear India shareholders didn’t get the required number of
shares in May-June ‘10.
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30. Parents Health
• Ability to pay – Health of parent balance sheet
▫ e.g. Esab India parent company Charter International Plc is
facing tough times due to fierce competition from rivals and is
unlikely to make a bid for delisting
31. Incentive to Delist
• Globally what is parent’s other subsidiaries structure.
▫ Honeywell – Only Indian Subsidiary listed worldwide
• Their Focus on India
▫ Goodyear global investor presentation projects China as the next
big destination & says nothing about India.
• Whether they are focussing on India through unlisted subsidiary
▫ Saint Gobain –
100% unlisted subsidiary Saint Gobain Glass India with over
Rs 978 cr of sh capital, 1210 cr of sales and 208 cr of profit.
Listed company the company has hardly invested 90 cr of
capital and does a business of less than 100 crs…
32. Incentive to Delist
• Blue Dart
▫ Spate of fellow subsidiaries, which sport such names of DHL
Express (India) Pvt Ltd, DHL Lemuir Logistics Pvt Ltd, and
Skyline Air Logistics Limited.
▫ All incorporated in India
▫ Operating in the India orbit
▫ Similar line of business that Blue Dart is in
• Goodyear South Asia
• Timken India
33. Floor Price
• Applicable in case where the reverse book building has already
started/has been announced.
• Binani Cement had set the floor price set was Rs. 82 which was
below the recent buyback at Rs. 90 in which some shares were
tendered by the firm.
34. Share Holding Pattern
• Who are the minority? Are there any 1% plus holders? Are there
professional investors who hold large chunk of shares? In cases
where the non-promoter shareholding is concentrated, delisting
becomes relatively easy.
• Easy Patterns
▫ Blue Dart promoters are required to buy back at least 9.5% of
total shares, 14.3% shares is held by Institutions & Corporate
Bodies.
• Tough ones
▫ Alfa Laval
•
35. Insider Selling….
• UTV – Some insider selling before the result of postal ballot
▫ 1st view – they don’t think postal ballot will be cleared
▫ 2nd view – they need money to utilise their ESOP’s…
36. Time Risk
• Presence of ESOP’s like in case of HSBC investdirect/ UTV
▫ HSBC initiated delisting on June 16 2009
▫ SEBI amendment saying all convertible securities need to be
extinguished
▫ Process almost took 10 months
37. Legal Loopholes
• Cookson Plc, the parent of metallurgical chemicals maker Foseco
India,
• Gifted 11.48% of Foseco India stake to Karibu Holdings UK,
bringing its stake down to 75% to comply with Indian listing norms,
it said in one of its result filings.
• Current position
▫ Legally debatable and certainly not in the spirit of the law
38. Delisting Tax Treatment
▫ STT is not applicable, so in the case of individuals and investing
companies.
Special rate of 15% on share term cap gain tax and exemption
on long term cap gain tax will not apply.
Short term Capital gains will be treated as normal business
income and taxed as per your present tax slab.
Long term will be taxed at 10% without indexation and 20%
with indexation.
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41. Sh holding pattern easy but valuations on higher
side….
• Oracle – a ray of hope ….
▫ From 2011 SEC filing- As the majority shareholder of Oracle Financial
Services Software Limited, a publicly traded Indian software company
focused on the banking industry, we are faced with several additional
risks, including being subject to local securities regulations and being
unable to exert full control Home
52. UTV Delisting….
• UTV
▫ CMP 950, Indicative Offer Price – 1000
▫ Expectation of some premium
Promoter Ronnie to be paid at the price discovered in Reverse Book
building
▫ Last open offer by Disney at Rs 860 in 2008
▫ Risk
Valuations expensive
Time Risk – High, due to presence of ESOP’s, Postal ballot passed
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54. Exedy Delisting….
• Exedy
▫ CMP 206, Indicative Offer Price – 178.5, Floor – 141.36
▫ Last open offer by Exedy at Rs 178.5
▫ Postal ballot passed
▫ Risk
Valuations expensive as loss making entity
Time Risk – Standard
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58. Timken India….
• Global experience – Annual report shows List of subsidiaries
showing ~69 subsidiaries worldwide out of which only 2 of them
incl India are listed
• Ward timken (Chairman Timken Global) talks about delisting or
diluting its stake- Apr 11, 2011
• Very bullish on India and China growth story
• Concern
▫ Have an Indian Subsidiary & new major investments through it –
200 cr in near future.. Current paid up capital 96 cr… In Listed
entity 63.7 cr
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59. Sh Holding Pattern
• 80.02% holding - so out of the balance open offer of 19.98, they will
require to get atleast 50% i.e. 9.99%
• 4.72% with Institutions
• 1.57% body corporates
• 0.64% individuals holding >1 lakh Rs
• ignoring 0.19 held by NRI's - they can mop up - 6.93% from smart
investors
• out of the balance 12.86% (held by public <1 lakh) +.19 clearing
members - 13.05% - they require 23% tender to get balance 3.06%
• HDFC, DSP Blackrock (acquisition price ~175 in nov-dec 2010) and
UTI are invested
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62. What if you don’t wish to participate in delisting
• Exit thereafter is normally a problem
▫ Management might not offer the same price it did in delisting
• Cadbury’s has initiated compulsory buy back – minority
shareholders fighting it out – The last offer price by Cadbury 1900
Rs is much above Rs 500 being offered during delisting
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63. For any unanswered questions
You can reach me on
•ASHISHKILA@Gmail.com
•+91-9999751327
