The RS Damani and GS Damani controlled Bright Star Investments Ltd (Bright Star) - which acquired 14.97 per cent in VST Industries - is making an open offer to all public shareholders of VST at Rs 112 per share to acquire the outstanding 30,88,384 equity shares representing 20 per cent in the company.

The offer price is at a premium of 26.5 per cent over the closed price of Rs 88.60 per share at the BSE on Tuesday. The stock atracted an upper circuit of 8 per cent at both the BSE and the NSE. It closed at Rs 88.85 at the NSE, and clocked combined trading volume of only 7,200 shares.

The offer is expected to open at the end of March and will close in April-end. The paid-up equity capital of the Rs 748-crore cigarette maker, VST, is Rs 23.44 crore.

Bright Star Investments is making the offer to achieve substantial increase in its holding in VST and for nothing else. The acquirer has arranged the required funds and also created an escrow account with HDFC Bank.

During late 1998, RS Damani had made a bid to increase his stake in the company and informed the company that his holdings had crossed 5 per cent limit on September 2, 1998, in concert with Bright Star Investments and Damani Estate & Finance. However, the company in a letter to the Hyderabad Stock Exchange said that Damani, in concert with the above mentioned persons, and including the shares lodged with the company till date (the date of the letter September 14, 1998), does not exceed the 5 per cent limit.

The move assumes significance as multinational British American Tobacco Plc (BAT), is the single largest shareholder with a 32 per cent holding in VST.

Financial institutions hold 20 per cent of the equity, while the balance 33 per cent is held by the public.

Any move by BAT to increase its stake is subject to the Foreign Investment Promotion Board (FIPB) clearance. BAT's efforts to increase its stake in tobacco major, ITC, a few years back, had also raised an uproar. According to market sources, given these circumstances the chances of a counter offer by BAT are bleak as it will take some effort on the part of the multinational to seek an FIPB approval before launching a counter-bid.

Earlier, BAT had also tried to increase its stake in the company through a Rs 75 crore preference issue. However, FIPB had refused to grant permission to the issue. But BAT had increased its stake in the company to 32.16 per cent after converting the advanced subscription of Rs 23.81 crore into external commercial borrowings.

Industry observers point out that the open offer mounted by the Damanis for an additional stake in VST is unlikely to take the shape of a long-drawn bid-counter bid battle as was the case with GESCO. During the last 12-month period prior to the announcement, the highest price and the average price paid by Bright Star for shares of VST was Rs 110.55 and Rs 87 respectively, market sources said.

The offer price is greater than the highest price paid by Bright Star for any acquisition of shares of VST during the 26-week period prior to the date of announcement. The offer price represents a P/E multiple of 10.98.