Largest open offer fails to dispel doubts over success

Written by feBureau | Mumbai | Updated: May 1 2013, 07:17am hrs
The open offer announced by Unilever to increase its stake in its Indian arm, Hindustan Unilever, dwarfs some of the largest offers that the Indian equity market has ever seen. The R29,220-crore open offer is even bigger than the combined value of the three largest open offers announced in India till date.

According to data available with Prime Database, the proposed voluntary open offer by Unilever is more than double the size of Vedantas R13,631.48 crore open offer to acquire shares from the minority shareholders of Cairn India in 2011.

Vedantas offer is followed by open offers in the case of Ranbaxy Laboratories (R6,816.66 crore in 2008) and Siemens (R6,233.39 crore in 2011). The rest of the large open offers have all been less than R6,000 crore in size (see table).

A section of market players feels that though the open offer is impressive in size, investors could well do by staying away, especially given that shares tendered in an open offer attract long-term capital gains tax and the share price has also run up significantly.

If investors are in tax brackets of 15-20%, then post-tax, I do not think it will be very well off. Hence, it is better to hold on if your post-tax return from the sell-off is not significantly better, says Raamdeo Agrawal, director & co-founder, Motilal Oswal Financial Services.

According to the current regulations, shares tendered in an open offer are considered to be off-market trades and so do not attract any securities transaction tax, but LTCG tax. The gains are taxed at 10% without indexation or 20% with indexation.

The impact of the Unilever announcement was immediately visible as the stock of the Indian FMCG major jumped 20% within minutes of the start of the trading session. It touched a new 52-week high of R597, before closing at R583.60, up R86 or 17.28%.

Analysts were surprised as it came only a day after the Indian arm reported a 14.65% increase in its net profit at R787.20 crore for the fourth quarter ended March 2013.

Analysts are also speculating that the next step for the London-based entity would be trying to get the Indian arm delisted. Interestingly, Unilever is also trying to get Unilever Pakistan delisted from the Karachi Stock Exchange.