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Billionaire Anil Agarwal, a developer led by Vedanta Resources, has proposed to take Vedanta privately in bad weather with government firm Stakeholders Empowerment Services (SES) questioning price equity.
“It can be said that the offer is not serious, since investors are expected to exceed the offer at a price lower than 50% of the 52-week maximum, almost 45% of the book value (March 31, 2019), A 20 percent dividend yield more when interest rates are historically low with a chance of recovery equals questioning investor wisdom. Finally, is the price fair? The unequivocal answer is not at all. ” SES analysts Varun Krishnan and JN Gupta have said in a note.
On Tuesday Vedanta announced that the promoters plan to offer Rs 87.5 per share for a 49 percent stake in the hands of public shareholders. The offer price was set at a 9.9 percent premium to Monday’s closing price of Rs 79. Currently, the shares are trading at Rs 90, above the issue price.
“Because it is universally known and it is the opinion of all experts that these are uncertain times and that current prices do not reflect long-term value, therefore, the intention seems to be that developers want to take advantage of the current market situation and acquire 100 percent of the company at a current low price, “said SES.
The corporate governance regulator has urged Vedanta’s board to debate price fairness and other options with shareholders.
“Promoters are obviously putting their money in because they believe in business and future prospects. It is a great opportunity and a suitable occasion for the board to fulfill its duty and act in the interest of investors, ”said the analyst duo.
Among the options proposed by SES is the “de-affiliation” of Hindustan Zinc (HZL) to benefit all shareholders.
Investors will have the option to choose to remain invested in one, both, or neither. For the Rs 90 they have for the Vedanta share, they will have one Vedanta share plus 0.74 HZL shares. HZL will have a great opportunity for price discovery as HZL’s participation pattern would change dramatically, ”he said.
Market players said the price of Rs 87.5 set by promoters at best can act as a minimum price. The exclusion of a share must be done through the reverse book creation method, where shareholders have the flexibility to demand a higher price. Analysts say if promoters are serious about foreclosure, the final price will have to be substantially higher.
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